Although activation of the alpha7 nicotinic acetylcholine receptor (alpha7 nAChR) modulates the response to sepsis, the role of this pathway in the development of sepsis-induced acute lung injury (ALI) is not known. In this study, we addressed the contribution of alpha7 nAChR in mediating endotoxin- and live Escherichia coli-induced ALI in mice. Because we found that alpha7 nAChR(+) alveolar macrophages and neutrophils were present in bronchoalveolar lavage and injured lungs of mice, we tested whether acetylcholine released by lung vagal innervation stimulated these effector cells and thereby down-regulated proinflammatory chemokine/cytokine generation. Administration of alpha7 nAChR agonists reduced bronchoalveolar lavage MIP-2 production and transalveolar neutrophil migration and reduced mortality in E. coli pneumonia mice, whereas vagal denervation increased MIP-2 production and airway neutrophil accumulation and increased mortality. In addition, alpha7 nAChR(-/-) mice developed severe lung injury and had higher mortality compared with alpha7 nAChR(+/+) mice. The immunomodulatory cholinergic alpha7 nAChR pathway of alveolar macrophages and neutrophils blocked LPS- and E. coli-induced ALI by reducing chemokine production and transalveolar neutrophil migration, suggesting that activation of alpha7 nAChR may be a promising strategy for treatment of sepsis-induced ALI.