Attention greatly influences sensory neural processing by enhancing firing rates of neurons that represent the attended stimuli and by modulating their tuning properties. The cholinergic system is believed to partly mediate the attention contingent improvement of cortical processing by influencing neuronal excitability, synaptic transmission and neural network characteristics. Here, we used a biophysically based model to investigate the mechanisms by which cholinergic system influences sensory information processing in the primary visual cortex (V1) layer 4C. The physiological properties and architectures of our model were inspired by experimental data and include feed-forward input from dorsal lateral geniculate nucleus that sets up orientation preference in V1 neural responses. When including a cholinergic drive, we found significant sharpening in orientation selectivity, desynchronization of LFP gamma power and spike-field coherence, decreased response variability and correlation reduction mostly by influencing intracortical interactions and by increasing inhibitory drive. Our results indicated that these effects emerged due to changes specific to the behavior of the inhibitory neurons. The behavior of our model closely resembles the effects of attention on neural activities in monkey V1. Our model suggests precise mechanisms through which cholinergic modulation may mediate the effects of attention in the visual cortex.