One of the early signs of Alzheimer's disease is the impairment in hippocampus-based episodic memory function, which is improved through the enhancement of cholinergic transmission. Several studies suggest that α7 nicotinic receptor (nAChR) activation represents a useful therapeutic strategy for the cognitive impairments associated with early Alzheimer's disease as the α7 subtype of nicotinic acetylcholine receptors are expressed by basal forebrain cholinergic projection neurons as well as by their targets in the hippocampus. The current model for the cholinergic deficit in Alzheimer's disease posits that inappropriate accumulation of misfolded oligomeric aggregates of β-amyloid peptide leads to the dysfunction of the signaling mechanisms that support the cholinergic phenotype; this is manifested as an altered function of nicotinic acetylcholine receptors and the nerve-growth factor trophic support system that results in the loss of cholinergic markers and eventually cholinergic neurons from the basal forebrain cholinergic system. A view was confounded by the fact that α7 nAChRs and β-amyloid peptides have been shown to interact in vitro and in vivo, including human post-mortem AD brain. This review will begin with a brief overview of the basal forebrain cholinergic system, followed by a discussion of the current knowledge of the cholinergic deficit in Alzheimer's disease, then a summary of the cholinergic phenotype observed in transgenic Alzheimer's disease mouse models. We will also present our recent findings that support our hypothesis that the α7 nicotinic acetylcholine receptor performs both the neurotrophic and neuroprotective roles in the maintenance of the cholinergic phenotype and discusses potential mechanisms and implications for Alzheimer's disease therapy.