The medial nucleus of trapezoid body (MNTB) is a major source of inhibition in auditory brainstem circuitry. The MNTB projects well-timed inhibitory output to principal sound-localization nuclei in the superior olive (SOC) as well as other computationally important centers. Acoustic information is conveyed to MNTB neurons through a single calyx of Held excitatory synapse arising from the cochlear nucleus. The encoding efficacy of this large synapse depends on its activity rate, which is primarily determined by sound intensity and stimulus frequency. However, MNTB activity rate is additionally influenced by inhibition and possibly neuromodulatory inputs, albeit their functional role is unclear. Happe and Morley (2004) discovered prominent expression of α7 nAChRs in rat SOC, suggesting possible engagement of ACh-mediated modulation of neural activity in the MNTB. However, the existence and nature of this putative modulation have never been physiologically demonstrated. We probed nicotinic cholinergic influences on acoustic responses of MNTB neurons from adult gerbils (Meriones unguiculatus) of either sex. We recorded tone-evoked MNTB single-neuron activity in vivo using extracellular single-unit recording. Piggyback multibarrel electrodes enabled pharmacological manipulation of nAChRs by reversibly applying antagonists to two receptor types, α7 and α4β2. We observed that tone-evoked responses are dependent on ACh modulation by both nAChR subtypes. Spontaneous activity was not affected by antagonist application. Functionally, we demonstrate that ACh contributes to sustaining high discharge rates and enhances signal encoding efficacy. Additionally, we report anatomic evidence revealing novel cholinergic projections to MNTB arising from pontine and superior olivary nuclei.SIGNIFICANCE STATEMENT This study is the first to physiologically probe how acetylcholine, a pervasive neuromodulator in the brain, influences the encoding of acoustic information by the medial nucleus of trapezoid body, the most prominent source of inhibition in brainstem sound-localization circuitry. We demonstrate that this cholinergic input enhances neural discrimination of tones from noise stimuli, which may contribute to processing important acoustic signals, such as speech. Additionally, we describe novel anatomic projections providing cholinergic input to the MNTB. Together, these findings shed new light on the contribution of neuromodulation to fundamental computational processes in auditory brainstem circuitry and to a more holistic understanding of modulatory influences in sensory processing.