Acetylcholine plays an important role in regulating the processing of sensory stimuli, and understanding its specific cellular actions is critical to understanding how sensory cortex develops and functions in different behavioral states. Here we review recent work on the cellular effects of nicotinic receptor activation in auditory cortex and describe how these actions could affect systems-level auditory function. In particular, we describe a novel function of nicotinic acetylcholine receptors to regulate glutamate synapses containing N-methyl-D-aspartate receptors during early postnatal development. The transient regulation of developing glutamate synapses also defines a window of vulnerability during which exposure to exogenous nicotine disrupts synapse development. Thus, it appears that nicotinic regulation of glutamate synapses is a critical feature of auditory cortex development.