Nicotine administration reduces appetite and alters feeding patterns; a major deterrent to smoking cessation is hyperphagia and resultant weight gain. We demonstrate here that lateral hypothalamic (LH) circuits involving melanin-concentrating hormone (MCH) neurons are subject to cholinergic modulation that may be related to the effects of nicotine on appetite control. Cholinergic input to the perifornical LH area of the mouse is confirmed by examination of immunostaining for vesicular acetylcholine (ACh) transporter (VAT) in conjunction with antibodies to MCH and the vesicular GABA transporter (vGABAT). vAChT-positive neurons border the LH, and VAT-positive projections are detected throughout the perifornical area. MCH-positive dendrites appear studded with vGABAT-positive contacts, consistent with recordings of GABAergic inputs to LH/MCH neurons identified by their location, morphology, electrophysiological profile, and MCH expression. Activation of presynaptic nicotinic ACh receptors (nAChRs) enhances GABAergic transmission. GABAergic transmission is potentiated by (1) direct nicotine application, (2) increasing local ACh concentration, and (3) stimulation of cholinergic projections. Based on pharmacological studies and comparisons of wild-type versus alpha7 nAChR subunit mutant mice, we propose that alpha7*-nAChRs are required for the modulation of GABAergic inputs in LH. Prenatal exposure to nicotine elicits a persistent elevation of GABAergic transmission in the LH of postnatal pups. Furthermore, GABAergic inputs to LH of prenatal nicotine-exposed pups are insensitive to subsequent nicotine challenge. Our studies support the hypothesis that nicotine administration or elevated cholinergic tone enhance inhibition of perifonical LH/MCH neurons via activation of presynaptic alpha7*-nAChRs.