Although activation of the α7 nicotinic acetylcholine receptor (α7 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 α7 nAChR in mediating endotoxin-and live Escherichia coli–induced ALI in mice. Because we found that α7 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 α7 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, α7 nAChR−/− mice developed severe lung injury and had higher mortality compared with α7 nAChR+/+ mice. The immunomodulatory cholinergic α7 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 α7 nAChR may be a promising strategy for treatment of sepsis-induced ALI.