There is evidence to suggest that the APOE ɛ4 allele (which confers an increased risk of developing dementia) might be associated with cognitive advantages earlier in life. Further, nicotine might selectively benefit ɛ4 carriers. We used fMRI to explore performance on a prospective memory (PM) task in young adults (age 18-30) with and without nicotine using a within-subjects design. Participants performed an ongoing task while retaining a PM instruction to respond to specific stimuli embedded in the task. Nicotine effects varied according to APOE status. Reaction times to the PM cue were improved under nicotine in ɛ4 carriers, but not in ɛ3 carriers. In an event-related analysis, extrastriate responses to PM trials were enhanced by nicotine only in ɛ4 carriers. These differences in early visual processing may contribute to the behavioral findings. Activity in medial BA10 (previously implicated in PM) differentiated ɛ4 from ɛ3 carriers. One BA10 subregion showed greater deactivation in ɛ4 carriers during PM trials. Activity in other BA10 subregions was modulated by PM reaction time, pointing to region-specific effects within medial BA10. In addition, activity in right hippocampal formation was only seen in ɛ4 carriers receiving nicotine. These results demonstrate that cognitive enhancement by nicotine can selectively benefit APOE ɛ4 carriers, and point to genotype-specific differences in neural activity during PM. In addition, these results show that the role of medial BA10 in PM likely involves varying contributions from functionally specific subregions.Neuropsychopharmacology advance online publication, 12 December 2012; doi:10.1038/npp.2012.230.