Nicotine enhances attention and working memory by activating nicotinic acetylcholine receptors (nAChRs). The prefrontal cortex (PFC) is critical for these cognitive functions and is also rich in nAChR expression. Specific cellular and synaptic mechanisms underlying nicotine's effects on cognition remain elusive. Here we show that nicotine exposure increases the threshold for synaptic spike-timing-dependent potentiation (STDP) in layer V pyramidal neurons of the mouse PFC. During coincident presynaptic and postsynaptic activity, nicotine reduces dendritic calcium signals associated with action potential propagation by enhancing GABAergic transmission. This results from a series of presynaptic actions involving different PFC interneurons and multiple nAChR subtypes. Pharmacological block of nAChRs or GABA(A) receptors prevented nicotine's actions and restored STDP, as did increasing dendritic calcium signals with stronger postsynaptic activity. Thus, by activating nAChRs distributed throughout the PFC neuronal network, nicotine affects PFC information processing and storage by increasing the amount of postsynaptic activity necessary to induce STDP.