Positive allosteric modulators of ␣7 nicotinic acetylcholine receptors (nAChRs) have attracted considerable interest as potential tools for the treatment of neurological and psychiatric disorders such as Alzheimer's disease and schizophrenia. However, despite the potential therapeutic usefulness of these compounds, little is known about their mechanism of action. Here, we have examined two allosteric potentiators of ␣7 nAChRs (PNU-120596 and LY-2087101). From studies with a series of subunit chimeras, we have identified the transmembrane regions of ␣7 as being critical in facilitating potentiation of agonist-evoked responses. Furthermore, we have identified five transmembrane amino acids that, when mutated, significantly reduce potentiation of ␣7 nAChRs. The amino acids we have identified are located within the ␣-helical transmembrane domains TM1 (S222 and A225), TM2 (M253), and TM4 (F455 and C459). Mutation of either A225 or M253 individually have particularly profound effects, reducing potentiation of EC 20 concentrations of acetylcholine to a tenth of the level seen with wild-type ␣7. Reference to homology models of the ␣7 nAChR, based on the 4Å structure of the Torpedo nAChR, indicates that the side chains of all five amino acids point toward an intrasubunit cavity located between the four ␣-helical transmembrane domains. Computer docking simulations predict that the allosteric compounds such as PNU-120596 and LY-2087101 may bind within this intrasubunit cavity, much as neurosteroids and volatile anesthetics are thought to interact with GABA A and glycine receptors. Our findings suggest that this is a conserved modulatory allosteric site within neurotransmitter-gated ion channels.allosteric modulators ͉ neurotransmitter receptor N icotinic acetylcholine receptors (nAChRs) are excitatory neurotransmitter-gated ion channels and members of a superfamily that also includes ionotropic receptors for 5-hydroxytryptamine (5-HT; serotonin), glycine and ␥-aminobutyric acid (GABA) (1, 2). Nicotinic receptors are allosteric proteins (3), which have been implicated in a variety of neurological and psychiatric disorders, including Alzheimer's disease, Parkinson's disease, epilepsy, and schizophrenia (4-6). As a consequence, nAChRs are viewed as being important targets for therapeutic drug discovery (7,8).Although most nAChR subunits assemble only into heteromeric nAChRs (9, 10), the ␣7 and ␣8 subunits are important exceptions. Both ␣7 and ␣8 are able to generate functional homomeric nAChRs (11, 12) and have much closer sequence similarity to each other than to other nAChR subunits (2, 9). Whereas there is evidence that ␣7 nAChRs are an important receptor subtype in the mammalian brain (and in other vertebrates), the ␣8 subunit has been identified only in avian species. The 5-HT receptor 3A subunit (5-HT 3A ) has close sequence similarity to nAChR subunits (2) and, like the nAChR ␣7 and ␣8 subunits, is able to generate functional homomeric cationselective ion channels (13). Indeed, the ability of ␣7 and 5-HT 3A subunits to...