Cognitive decline, an important comorbidity of type 2 diabetes (T2D), is attributed to oxidative stress and impaired cholinergic signaling in the brain. The α7 nicotinic acetylcholine receptor (α7nAChR) is densely distributed in the hippocampus and cortex, and exerts neuroprotective and procognitive actions. Ethyl gallate (EG), a natural phenolic antioxidant compound, showed high in-silico binding affinity towards α7nAChR and brain penetrability. Therefore, the present study aimed to evaluate the involvement of α7nAChR in the potential of EG to ameliorate T2D-induced Alzheimer's disease-like condition. T2D was induced by intraperitoneal (i.p.) injection of streptozotocin (35 mg/kg) in rats on high-fat diet. Diabetic animals were treated with EG (10 and 20 mg/kg, i.p.) for four weeks, and their learning and memory performance was evaluated by the Morris water maze (MWM). Further, the brains were subjected to biochemical analysis of antioxidants like glutathione (GSH), superoxide dismutase (SOD), and catalase (CAT), and oxidative stress marker malonaldehyde (MDA). While diabetic rats showed a significant decline in cognitive performance in the MWM, a substantial improvement was noticed following EG treatment. Further, the diabetes-associated reductions in GSH, SOD, and CAT levels, along with increased MDA contents in the brain, were effectively restored by EG. Interestingly, pre-treatment with α7nAChR antagonist methyllycaconitine (1 mg/kg, i.p.) attenuated the effects of EG on behavioral and biochemical parameters. The results suggest that EG may augment cholinergic signaling in the brain via α7nAChR to mitigate oxidative stress, consequently alleviating T2D-associated dementia. Therefore, EG could be a potential candidate for addressing cognitive impairment comorbid with T2D.