Behavioral states such as arousal and attention have profound effects on sensory processing, determining how-even whether-a stimulus is perceived. This state-dependence is believed to arise, at least in part, in response to inputs from subcortical structures that release neuromodulators such as acetylcholine, often nonsynaptically. The mechanisms that underlie the interaction between these nonsynaptic signals and the more point-to-point synaptic cortical circuitry are not well understood. This review highlights the state of the field, with a focus on cholinergic action in early visual processing. Key anatomical and physiological features of both the cholinergic and the visual systems are discussed. Furthermore, presenting evidence of cholinergic modulation in visual thalamus and primary visual cortex, we explore potential functional roles of acetylcholine and its effects on the processing of visual input over the sleep-wake cycle, sensory gain control during wakefulness, and consider evidence for cholinergic support of visual attention.