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Nicotine is thought to have an effect on cognitive function through cholinergic and dopaminergic stimulation in the prefrontal cortex and basal ganglia. Functional MRI was used to assess the effect of nicotine on brain activation during a verbal and visual working memory task. In a group of 10 smokers, nicotine improved performance in the verbal task compared to placebo; increased activation in the ventrolateral pre-frontal cortex and lentiform nucleus, as well as decreased activation in the hippocampus and medial frontal cortex. In the visual task, there were no differences in performance, no additional areas were recruited, and there was no suppression of activity in the hippocampus. The results suggest that this pattern of changes may have contributed to the improvements in performance in the verbal task. It is likely that nicotine affects working memory through cholinergic activation and dopaminergic modulation of the corticostriatal pathway.