Background Generalized anxiety disorder is associated with hyperactivity in the amygdala-prefrontal networks, and normalization of this aberrant function is thought to be critical for successful treatment. Preclinical evidence implicates cholinergic neurotransmission in the function of these systems and suggests that cholinergic modulation may have anxiolytic effects. However, the effects of cholinergic modulators on the function of anxiety-related networks in humans have not been investigated. Methods We administered a novel α7 nicotinic acetylcholine receptor–negative allosteric modulator, BNC210, to 24 individuals (3 male subjects) with generalized anxiety disorder and assessed its effects on neural responses to fearful face stimuli. Results BNC210 reduced amygdala reactivity to fearful faces relative to placebo and similarly to lorazepam and also reduced connectivity between the amygdala and the anterior cingulate cortex, a network involved in regulating anxious responses to aversive stimuli. Conclusions These results demonstrate for the first time that the function of disorder-relevant neural circuits in generalized anxiety disorder can be beneficially altered through modulation of cholinergic neurotransmission and suggest potential for this system as a novel target for anxiolytic pharmacotherapy.