M(1) muscarinic acetylcholine receptors (mAChRs) may represent a viable target for treatment of disorders involving impaired cognitive function. However, a major limitation to testing this hypothesis has been a lack of highly selective ligands for individual mAChR subtypes. We now report the rigorous molecular characterization of a novel compound, benzylquinolone carboxylic acid (BQCA), which acts as a potent, highly selective positive allosteric modulator (PAM) of the rat M(1) receptor. This compound does not directly activate the receptor, but acts at an allosteric site to increase functional responses to orthosteric agonists. Radioligand binding studies revealed that BQCA increases M(1) receptor affinity for acetylcholine. We found that activation of the M(1) receptor by BQCA induces a robust inward current and increases spontaneous EPSCs in medial prefrontal cortex (mPFC) pyramidal cells, effects which are absent in acute slices from M(1) receptor knock-out mice. Furthermore, to determine the effect of BQCA on intact and functioning brain circuits, multiple single-unit recordings were obtained from the mPFC of rats that showed BQCA increases firing of mPFC pyramidal cells in vivo. BQCA also restored discrimination reversal learning in a transgenic mouse model of Alzheimer's disease and was found to regulate non-amyloidogenic APP processing in vitro, suggesting that M(1) receptor PAMs have the potential to provide both symptomatic and disease modifying effects in Alzheimer's disease patients. Together, these studies provide compelling evidence that M(1) receptor activation induces a dramatic excitation of PFC neurons and suggest that selectively activating the M(1) mAChR subtype may ameliorate impairments in cognitive function.