Recent studies have suggested that the use of cognitive enhancers as adjuncts to exposure-based therapy in individuals suffering from post-traumatic stress disorder (PTSD) may be beneficial. Brain cholinergic signaling through basal forebrain projections to the hippocampus is an established pathway mediating fear response and cognitive flexibility. Here we employed a genetic strategy to enhance cholinergic activity through increased signaling of the NGF receptor TrkA. This strategy leads to increased levels of the marker of cholinergic activation, acetylcholine synthesizing enzyme choline acetyltransferase, in forebrain cholinergic regions and their projection areas such as the hippocampus. Mice with increased cholinergic activity do not display any neurobehavioral abnormalities except a selective attenuation of fear response and lower fear expression in extinction trials. Reduction in fear response is rescued by the GABA antagonist picrotoxin in mutant mice, and, in wild-type mice, is mimicked by the GABA agonist midazolam suggesting that GABA can modulate cholinergic functions on fear circuitries. Importantly, mutant mice also show a reduction in fear processing under stress conditions in a single prolonged stress (SPS) model of PTSD-like behavior, and augmentation of cholinergic signaling by the drug donepezil in wild-type mice promotes extinction learning in a similar SPS model of PTSD-like behavior. Donepezil is already in clinical use for the treatment of dementia suggesting a new translational application of this drug for improving exposure-based psychotherapy in PTSD patients.