Hippocampal CA1 pyramidal cells receive two major excitatory synaptic inputs via the Schaffer collateral (SC) and temporoammonic (TA) pathways. Nicotine promotes induction of long-term potentiation (LTP) in the SC path; however, it is not known whether the modulatory effect of nicotine on LTP induction is pathway-specific. Here we show that nicotine suppresses LTP induction in the TA path. Interestingly, these opposing effects of nicotine were absent or greatly reduced in α2 nicotinic acetylcholine receptor (nAChR)-knockout (KO) mice, suggesting that an α2-containing nAChR subtype mediates these effects. Optical imaging with a voltage-sensitive dye revealed significantly stronger membrane depolarization in the presence of nicotine in the SC path, facilitating spread of excitatory neural activity along both the somatodendritic and the CA1 proximodistal axes. These effects of nicotine were also absent in α2 nAChR-KO mice, suggesting that the enhanced optical signal is related to the nicotine-induced facilitation of LTP induction. In contrast, in the TA path nicotine terminated depolarization more quickly and increased the delayed hyperpolarization in the termination zone of the TA path input. These inhibitory effects of nicotine were absent in α2 nAChR-KO mice and, thus, most probably underlie the nicotine-induced suppression of LTP induction. Our results suggest that nicotine influences the local balance between excitation and inhibition, gates LTP, and directs information flow through the hippocampal circuits via the activation of α2* nAChRs. These effects of nicotine may represent the cellular basis of nicotine-mediated cognitive enhancement.