A team at King's College London has demonstrated the positive effects of nicotine in experiments on rats and the researchers hope to develop drugs which copy the active ingredients in tobacco without causing heart disease, cancer, stroke or addiction.
According to researchers nicotine-based drugs may help give dementia patients up to six extra months of independent living.
The team showed how proteins on the surface of cells respond to the compound, and pinned down the role of several key chemicals in the brain, including dopamine and noradrenaline.
It was observed that there are only subtle biochemical differences in the way nicotine stimulates the brain, and triggers addiction. The concentration power in rats went up by 5 per cent when injected with nicotine.
The findings will be presented at the Forum of European Neuroscience in Geneva and the drugs that may be available in five years, may have fewer side effects than existing medicines for dementia, according to the research team.
However, the scientists stressed the new treatment at best will only give patients a few extra months of independent life and not cure them completely of Alzheimer's disease.
"The substances that we call drugs, in the majority of cases, do have a mixture of beneficial and harmful effects and nicotine is no exception to this," said Professor Ian Stoleman of Britain's King's College.
Prof Clive Ballard, of the Alzheimer's Society, said: "Although nicotine has therapeutic qualities, when it is absorbed through smoking the health risks outweigh the benefits.
"Smoking increases risk of vascular dementia, the second most common form of dementia and is associated with a number of other health risks," he added.
Rebecca Wood, of the Alzheimer's Research Trust also observed that people should not be tempted to smoke to try to ward off dementia. She said the best way to minimize risk was to eat a balanced diet and exercise regularly.