In a double-blind placebo-controlled study, we examined the effect of nicotine, a cholinergic agonist, on performance of a prospective memory (ProM) task in young adult volunteers. Volunteers were required to complete an ongoing lexical decision task while maintaining the ProM task (responding with a different button press to items containing particular target letters). Half of the volunteers were smokers, half were nonsmokers. Half of each group received a single dose (1 mg) of nicotine nasal spray before completing the task; the remaining volunteers received a matched inactive placebo spray. Nicotine improved performance on the ProM task when volunteers were able to devote resources to that task. Under a variant procedure, where volunteers completed a concurrent auditory monitoring task, ProM performance was impaired under nicotine. Results are discussed in terms of the resource model of ProM, and the arousal model of drug effects. The data suggest that ProM under the conditions tested here is a resource-needy process, and that nicotine can improve performance by increasing available resources. Increased working memory demands that encourage redirection of resources may impair ProM performance, but the conditions under which these deficits emerge depend upon the subjective allocation of resources across tasks, rather than resource availability per se. Neuropsychopharmacology (2006) 31, 1545-1549.