Prenatal exposure to cigarette smoke is known to produce lasting arousal, attentional and cognitive deficits in humans. The pedunculopontine nucleus (PPN), as the cholinergic arm of the reticular activating system (RAS), is known to modulate arousal, waking and REM sleep. Rapid eye movement (REM) sleep decreases between 10 and 30 days postnatally in the rat, with the greatest decrease occurring at 12-21 days. Pregnant dams were exposed to 150 ml of cigarette smoke for 15 min, 3 times per day, from day E14 until parturition, and the pups allowed to mature. We analyzed a) intrinsic membrane properties of PPN neurons in slices from pups aged 12-21 days, and b) the sleep state-dependent P13 auditory evoked potential, which is generated by PPN outputs, in animals allowed to age to adolescence. We found significant changes in the intrinsic membrane properties of PPN cells in prenatally exposed animals compared to intact ones, rendering these cells more excitable. In addition, we found disturbances in the habituation to repetitive stimulation in adolescent, freely moving animals, suggestive of a deficit in the process of sensory gating. These findings could explain some of the differences seen in individuals whose parents smoked during pregnancy, especially in terms of their hypervigilance and increased propensity for attentional deficits and cognitive/behavioral disorders.