People with schizophrenia suffer from a variety of symptoms that can be categorized as positive, negative and cognitive symptoms. Cognitive symptoms are not properly treated with antipsychotic medication and are the major cause of disability associated with the disorder. People with schizophrenia smoke more frequently and heavily than the general population. This observation in view of the well established role of nicotinic, cholinergic neurotransmission in cognition led to the hypothesis that people with schizophrenia may use nicotine as a self-medication to ameliorate cognitive symptoms associated with their disease. Furthermore genetic and post-mortem studies point to additional links between nicotinic cholinergic neurotransmission and schizophrenia. This article provides an insight in the possible relationship between schizophrenia and smoking behavior. We focus on the effects of nicotine on individual neurons as well as on neuronal networks. With respect to single neurons the immediate electrophysiological consequences of nicotinic stimulation and the more "metabotropic" effects related to intracellular signal transduction cascades that may lead to plastic changes in the neuron are discussed. With respect to the network level, three systems are discussed: cognition, reward and stress response. The effects of nicotine on cognition may be most pertinent to the problem of schizophrenia, but schizophrenics may also smoke to regulate mood and reduce stress. A better understanding of the molecular and cellular effects of nicotine and how they are related to the pathophysiology and symptomatology of schizophrenia may help to identify new targets for the pharmacotherapy of schizophrenia and of nicotine addiction in schizophrenia.