Ventral tegmental area dopamine neurons control reward-driven learning, and their dysregulation can lead to psychiatric disorders. Tonic and phasic activity of these dopaminergic neurons depends on cholinergic tone and activation of nicotinic acetylcholine receptors (nAChRs), particularly those containing the β2 subunit (β2*-nAChRs). Nuclear peroxisome proliferator-activated receptors type-α (PPARα) tonically regulate β2*-nAChRs and thereby control dopamine neuron firing activity. However, it is unknown how and when PPARα endogenous ligands are synthesized by dopamine cells. Using ex vivo and in vivo electrophysiological techniques combined with biochemical and behavioral analysis, we show that activation of α7-nAChRs increases in the rat VTA both the tyrosine phosphorylation of the β2 subunit of nAChRs and the levels of two PPARα endogenous ligands in a Ca(2+)-dependent manner. Accordingly, in vivo production of endogenous PPARα ligands, triggered by α7-nAChR activation, blocks in rats nicotine-induced increased firing activity of dopamine neurons and displays antidepressant-like properties. These data demonstrate that endogenous PPARα ligands are effectors of α7-nAChRs and that their neuromodulatory properties depend on phosphorylation of β2*-nAChRs on VTA dopamine cells. This reveals an autoinhibitory mechanism aimed at reducing dopamine cell overexcitation engaged during hypercholinergic drive. Our results unveil important physiological functions of nAChR/PPARα signaling in dopamine neurons and how behavioral output can change after modifications of this signaling pathway. Overall, the present study suggests PPARα as new therapeutic targets for disorders associated with unbalanced dopamine-acetylcholine systems.