Cognitive impairments are a common consequence of traumatic brain injury (TBI). The hippocampus is a subcortical structure that plays a key role in the formation of declarative memories and is highly vulnerable to TBI. The α7 nicotinic acetylcholine receptor (nAChR) is highly expressed in the hippocampus and reduced expression and function of this receptor are linked with cognitive impairments in Alzheimer’s disease and schizophrenia. Positive allosteric modulation of α7 nAChRs with AVL-3288 enhances receptor currents and improves cognitive functioning in naïve animals and healthy human subjects. Therefore, we hypothesized that targeting the α7 nAChR with the positive allosteric modulator AVL-3288 would enhance cognitive functioning in the chronic recovery period of TBI. To test this hypothesis, adult male Sprague Dawley rats received moderate parasagittal fluid-percussion brain injury or sham surgery. At 3 months after recovery, animals were treated with vehicle or AVL-3288 at 30 min prior to cue and contextual fear conditioning and the water maze task. Treatment of TBI animals with AVL-3288 rescued learning and memory deficits in water maze retention and working memory. AVL-3288 treatment also improved cue and contextual fear memory when tested at 24 hr and 1 month after training, when TBI animals were treated acutely just during fear conditioning at 3 months post-TBI. Hippocampal atrophy but not cortical atrophy was reduced with AVL-3288 treatment in the chronic recovery phase of TBI. AVL-3288 application to acute hippocampal slices from animals at 3 months after TBI rescued basal synaptic transmission deficits and long-term potentiation (LTP) in area CA1. Our results demonstrate that AVL-3288 improves hippocampal synaptic plasticity, and learning and memory performance after TBI in the chronic recovery period. Enhancing cholinergic transmission through positive allosteric modulation of the α7 nAChR may be a novel therapeutic to improve cognition after TBI.