Muscarinic and nicotinic acetylcholine (ACh) receptors (mAChRs and nAChRs) are emerging as important targets for the development of novel treatments for the symptoms associated with schizophrenia. Preclinical and early proof-of-concept clinical studies have provided strong evidence that activators of specific mAChR (M(1) and M(4)) and nAChR (α(7) and α(2)β(4)) subtypes are effective in animal models of antipsychotic-like activity and/or cognitive enhancement, and in the treatment of positive and cognitive symptoms in patients with schizophrenia. While early attempts to develop selective mAChR and nAChR agonists provided important preliminary findings, these compounds have ultimately failed in clinical development due to a lack of true subtype selectivity and subsequent dose-limiting adverse effects. In recent years, there have been major advances in the discovery of highly selective activators for the different mAChR and nAChR subtypes with suitable properties for optimization as potential candidates for clinical trials. One novel strategy has been to identify ligands that activate a specific receptor subtype through actions at sites that are distinct from the highly conserved ACh-binding site, termed allosteric sites. These allosteric activators, both allosteric agonists and positive allosteric modulators, of mAChR and nAChR subtypes demonstrate unique mechanisms of action and high selectivity in vivo, and may provide innovative treatment strategies for schizophrenia.