Anxiety disorders are the most prevalent mental disorders in developed societies. Although roles for the prefrontal cortex, amygdala, hippocampus and mediodorsal thalamus in anxiety disorders are well documented, molecular mechanisms contributing to the functions of these structures are poorly understood. Here we report that deletion of Lynx2, a mammalian prototoxin gene that is expressed at high levels in anxiety associated brain areas, results in elevated anxiety-like behaviors. We show that LYNX2 can bind to and modulate neuronal nicotinic receptors, and that loss of Lynx2 alters the actions of nicotine on glutamatergic signaling in the prefrontal cortex. Our data identify Lynx2 as an important component of the molecular mechanisms that control anxiety, and suggest that altered glutamatergic signaling in the prefrontal cortex of Lynx2 mutant mice contributes to increased anxiety-related behaviors.