Coronavirus disease 2019 (COVID-19) is caused by the severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2). Infection relies on the binding of the viral spike protein (S) to angiotensin-converting enzyme 2 in host cells. Regions of the S protein have been suggested to interact with nicotinic acetylcholine receptors (nAChRs), and a potential contribution of nAChRs to COVID-19 pathophysiology has been proposed. α7 nAChR is an interesting candidate target since it is present in neuronal and non-neuronal cells, including immune cells, and has anti-inflammatory actions. We here identified a novel direct functional interaction between the α7 nAChR and a region of the S protein (Y674-R685). The S fragment exerts a dual effect, acting as a low-efficacy agonist and a non-competitive inhibitor. It activates the α7 nAChR, in line with our previous molecular dynamics simulations showing favorable binding of this accessible region of the S protein to the nAChR agonist binding pocket. However, activation requires the presence of positive allosteric modulators that enhance channel opening probability, indicating very low activation efficacy. The S fragment exerts an additional inhibition, which may be the predominant effect on α7 responses. This study reveals a functional interaction between α7 and the Y674-R685 fragment of the S protein, which opens doors for exploring the involvement of nAChRs in COVID-19 pathophysiology.