Prenatal exposure to maternal smoking has been linked to cognitive and auditory processing deficits in offspring. Preclinical studies have demonstrated that exposure to nicotine disrupts neurodevelopment during gestation and adolescence, possibly by disrupting the trophic effects of acetylcholine. Given recent clinical and preclinical work suggesting that neurocircuits that support auditory processing may be particularly vulnerable to developmental disruption by nicotine, we examined white matter microstructure in 67 adolescent smokers and nonsmokers with and without prenatal exposure to maternal smoking. The groups did not differ in age, educational attainment, IQ, years of parent education, or symptoms of inattention. Diffusion tensor anisotropy and anatomical magnetic resonance images were acquired, and auditory attention was assessed, in all subjects. Both prenatal exposure and adolescent exposure to tobacco smoke was associated with increased fractional anisotropy (FA) in anterior cortical white matter. Adolescent smoking was also associated with increased FA of regions of the internal capsule that contain auditory thalamocortical and corticofugal fibers. FA of the posterior limb of the left internal capsule was positively correlated with reaction time during performance of an auditory attention task in smokers but not in nonsmokers. Development of anterior cortical and internal capsule fibers may be particularly vulnerable to disruption in cholinergic signaling induced by nicotine in tobacco smoke. Nicotine-induced disruption of the development of auditory corticofugal fibers may interfere with the ability of these fibers to modulate ascending auditory signals, leading to greater noise and reduced efficiency of neurocircuitry that supports auditory processing.