Acetylcholine is a potent excitatory neurotransmitter, crucial for cognition and the control of alertness and arousal. Vigilance-specific recordings of the electroencephalogram (EEG) potently reflect thalamo-cortical and brainstem-cortical cholinergic activity that drives theta rhythms and task-specific cortical (de-synchronisation. Additionally, cholinergic projections from the basal forebrain act as a relay centre for the brainstem-cortical arousal system, but also directly modulate cortical activity, and thus promote wakefulness or rapid-eye movement (REM) sleep. Disease states such as sleep disorders, dementia and certain types of epilepsy are a further reflection of the potent cholinergic impact on CNS physiology and function, and highlight the relevance and inter-dependence of sleep and EEG. With novel technologies and computational tools now becoming available, advanced mechanistic insights may be gained and new avenues explored for diagnostics and therapeutics.