Abstract The α7 nicotinic acetylcholine receptor is a pentameric ligand-gated ion channel that modulates neuronal excitability, largely by allowing Ca 2+ permeation. Agonist binding promotes transition from a resting state to an activated state, and then rapidly to a desensitized state. Recently, cryo-EM structures of the human α7 receptor in nanodiscs were reported in multiple conformations. These were selectively stabilized by inhibitory, activating, or potentiating compounds. However, the functional annotation of these structures, and their differential interactions with unresolved lipids and ligands, remain incomplete. Here, we characterized their ion permeation, membrane interactions, and ligand binding using computational electrophysiology, free-energy calculations, and coarse-grained molecular dynamics. In contrast to non-conductive structures in apparent resting and desensitized states, the structure determined in the presence of the potentiator PNU-120596 was consistent with an activated state permeable to Ca 2+ . Transition to this state was associated with compression and rearrangement of the membrane, particularly in the vicinity of the peripheral MX helix. An intersubunit transmembrane site was implicated in selective binding of either PNU-120596 in the activated state, or cholesterol in the desensitized state. This substantiates functional assignment of all three lipid-embedded α7-receptor structures with ion permeation simulations. It also proposes testable models of their state-dependent interactions with lipophilic ligands, including a mechanism for allosteric modulation at the transmembrane subunit interface.