Individuals with schizophrenia smoke at high frequency relative to the general population. Despite the harmful effects of cigarette smoking, smoking among schizophrenic patients improves cognitive impairments not addressed or worsened by common neuroleptics. Varenicline, a nonselective neuronal nicotinic receptor (NNR) agonist and full agonist of 5-HT3A receptors, helps reduce smoking among schizophrenic patients. To determine whether varenicline also improves a cognitive symptom of schizophrenia, namely, impaired sensory gating, a transgenic mouse with schizophrenia, th-fgfr1(tk-), was used. Varenicline dose-dependently increased prepulse inhibition (PPI) of the startle response, a measure of sensory gating, in th-fgfr1(tk-) mice and normalized PPI deficits relative to nontransgenic controls. With the highest dose (10 mg/kg), however, there was a robust elevation of PPI and startle response, as well as reduced exploratory behavior in the open field and elevated plus maze. Pretreatment with the nonspecific NNR antagonist mecamylamine attenuated the exaggerated PPI response and, similar to the 5-HT3A receptor antagonist ondansetron, it prevented the reduction in exploratory behavior. Collectively, these results indicate that varenicline at low-to-moderate doses may be beneficial against impaired sensory gating in schizophrenia; however, higher doses may induce anxiogenic effects, which can be prevented with antagonists of NNRs or 5-HT3A receptors.