Recordings of auditory evoked potentials in the CA3 region of the hippocampus reveal a decrement in the N40 wave after the presentation of the second of closely paired auditory stimuli (interstimulus interval of 500 ms), a phenomenon known as sensory gating. Previous experiments have suggested the involvement of nicotinic cholinergic systems in auditory sensory processing. The present study examined the effects of lesioning the fimbria-fornix on auditory sensory processing in the hippocampus. Fimbria-fornix lesions resulted in a failure to decrement the N40 wave in the auditory evoked response to the second tone. When nicotine was administered to rats with fimbria-fornix lesions the drug was able to reinstate the normal suppression of the second auditory evoked response. These data support the involvement of nicotinic cholinergic afferents in auditory sensory modulation in the hippocampus.