Muscarinic receptors have been implicated in the regulation of cognition and psychosis based on pharmacological evidence from pre-clinical and clinical studies. Muscarinic agonists have shown promise in the clinic in improving cognition and reducing psychotic episodes in Alzheimer's patients. However, lack of selective muscarinic ligands has limited their use due to troublesome side effects observed at higher doses. Without selective ligands, it has been difficult to assign a specific muscarinic receptor subtype to these high order mental processes. Recent development of muscarinic receptor knockout mice has provided additional tools to investigate cognition and psychosis in behavioral assays and to determine the receptor subtypes associated with parasympathomimetic physiology. Biochemical studies indicate that the M1 receptor plays a significant role in regulating G alpha q-mediated signal transduction in the hippocampus and cortex. Behavioral studies suggest that the M4 receptor is involved in movement regulation and prepulse inhibition of the startle reflex, a measure of attention. These findings support a role for the development of M1 and M4 receptor agonists for diseases in which symptoms include cognitive impairment and psychotic behaviors.