Several lines of evidence suggest that cholinergic deficits may contribute to the pathophysiology of psychiatric disorders as well as Alzheimer’s disease. There is growing clinical evidence that galantamine, currently used for the treatment of Alzheimer’s disease, may improve cognitive dysfunction and psychiatric illness in schizophrenia, major depression, bipolar disorder, and alcohol abuse. Since galantamine is a rather weak acetylcholinesterase inhibitor, but has additional allosteric potentiating effects at nicotinic receptors, it affects not only cholinergic transmission but also other neurotransmitter systems such as monoamines, glutamate, and γ-aminobutyric acid (GABA) through its allosteric mechanism. It is likely that these effects may result in more beneficial effects. To understand the underlying mechanism for the clinical effectiveness of galantamine, neuropharmacological studies have been performed in animal models of several psychiatric disorders. These studies suggest that not only the nicotinic receptor–modulating properties but also the muscarinic receptor activation contribute to the antipsychotic effect and improvement of cognitive dysfunction by galantamine. This review summaries the current status on the pharmacology of galantamine, focusing on its effect on neurotransmitter release and pharmacological studies in animal models of psychiatric disorders.