Several polymorphisms of the transcription factor 4 ( TCF4 ) have been shown to increase the risk for schizophrenia, particularly TCF4 rs9960767. This polymorphism is associated with impaired sensorimotor gating measured by prepulse inhibition—an established endophenotype of schizophrenia. We therefore investigated whether TCF4 polymorphisms also affect another proposed endophenotype of schizophrenia, namely sensory gating assessed by P50 suppression of the auditory evoked potential. Although sensorimotor gating and sensory gating are not identical, recent data suggest that they share genetic fundamentals. In a multicenter study at six academic institutions throughout Germany, we applied an auditory P50 suppression paradigm to 1,821 subjects (1,023 never-smokers, 798 smokers) randomly selected from the general population. Samples were genotyped for 21 TCF4 polymorphisms. Given that smoking is highly prevalent in schizophrenia and affects sensory gating, we also assessed smoking behavior, cotinine plasma concentrations, exhaled carbon monoxide, and the Fagerström Test (FTND). P50 suppression was significantly decreased in carriers of schizophrenia risk alleles of the TCF4 polymorphisms rs9960767, rs10401120rs, rs17597926, and 17512836 ( P < 0.0002–0.00005). These gene effects were modulated by smoking behavior as indicated by significant interactions of TCF4 genotype and smoking status; heavy smokers (FTND score ≥4) showed stronger gene effects on P50 suppression than light smokers and never-smokers. Our finding suggests that sensory gating is modulated by an interaction of TCF4 genotype with smoking, and both factors may play a role in early information processing deficits also in schizophrenia. Consequently, considering smoking behavior may facilitate the search for genetic risk factors for schizophrenia.