Accumulated evidence suggests that the neuronal nicotinic receptor system is dysregulated in schizophrenia and nicotine may ameliorate symptoms of disease. The majority of patients with schizophrenia smoke cigarettes and nicotine may improve cognition and/or increase sensitivity to rewarding environmental stimuli to reduce anhedonia. Nicotinic agonists may therefore have therapeutic potential for the treatment of schizophrenia. The two studies presented in this thesis investigated the effects of nicotine on cognition and sensitivity to monetary reward in smokers and non-smokers with schizophrenia. Study 1 investigated the effects of nicotine on cognition and reward sensitivity in non-smokers with schizophrenia and non-psychiatric controls. Study 2 investigated the effects of smoking abstinence on reward sensitivity in smokers with schizophrenia. Nicotine improved attentional performance in both non-smokers with schizophrenia and nonpsychiatric controls. In addition, nicotine enhanced response inhibition to a greater extent amongst patients with schizophrenia compared with controls. These findings in non-smokers are not confounded by the effects of nicotine dependence and provide evidence that nicotinic agonists may improve cognition in schizophrenia. Nicotine enhanced sensitivity for monetary reward in non-smokers without psychiatric disorder but not in non-smokers with schizophrenia. In addition, smoking abstinence did not significantly reduce sensitivity to reward in smokers. Therefore, these findings do not support the hypothesis that nicotine ameliorates reward deficits and anhedonia in schizophrenia. However, findings in patients with schizophrenia may have been limited by small sample size or confounded by the effects of treatment with antipsychotic medications. In summary, these data suggest that nicotine improves attention and response inhibition however does not enhance sensitivity to rewarding environmental stimuli in schizophrenia. Investigation of the effects of repeated administration of nicotinic agonists on functional outcomes is needed to further understand the therapeutic potential of these agents in the treatment of cognitive dysfunction in schizophrenia.