Previous studies have reported that nicotine, a cholinergic agonist, could improve prospective memory (PM) – memory for a delayed intention – in healthy young adults. In the present study, we asked whether nicotine effects on PM performance were attributable to a drug-induced non-specific increase in arousal. Therefore, a double-blind, placebo-controlled study compared the effect of nicotine to the effect of an arousal manipulation on PM performance. All participants were non-smokers; half received 1 mg nicotine via a nasal spray and half received a matched placebo. Within these groups, half of the volunteers were exposed to hard anagrams and exhibited heightened tense arousal, while half of the volunteers were given easy anagrams and showed no change in arousal. These manipulations resulted in four conditions, placebo/low-arousal (n=12), placebo/high-arousal (n=10), nicotine/low-arousal (n=12), nicotine/high-arousal (n=13). All participants completed an ongoing lexical decision task while maintaining a PM intention (to make a separate, non-focal, response to certain items embedded within the ongoing task). When introduced separately, both nicotine and high tense arousal improved PM performance, but when combined, this improvement was eliminated. It is argued that both nicotine and high tense arousal increase attentional resources, specifically improving monitoring of the PM targets, but when combined they no longer produce beneficial effects. Additionally, given that nicotine exerted no effect on physiological or subjective measures of arousal, we conclude that the observed effects of nicotine and of arousal on PM performance are driven by different pharmacological mechanisms.