Nicotinic acetylcholine receptors are prototypes for the pharmaceutically important family of pentameric ligand-gated ion channels. Here we present atomic resolution structures of nicotine and carbamylcholine binding to AChBP, a water-soluble homolog of the ligand binding domain of nicotinic receptors and their family members, GABA_A, GABA_C, 5HT₃ serotonin, and glycine receptors. Ligand binding is driven by enthalpy and is accompanied by conformational changes in the ligand binding site. Residues in the binding site contract around the ligand, with the largest movement in the C loop. As expected, the binding is characterized by substantial aromatic and hydrophobic contributions, but additionally there are close contacts between protein oxygens and positively charged groups in the ligands. The higher affinity of nicotine is due to a main chain hydrogen bond with the B loop and a closer packing of the aromatic groups. These structures will be useful tools for the development of new drugs involving nicotinic acetylcholine receptor-associated diseases.