The pathophysiology of auditory hallucination, a common symptom of schizophrenia, has yet been understood, but during auditory hallucination, primary auditory cortex (A1) shows paradoxical responses. When auditory stimuli are absent, A1 becomes hyperactive, while A1 responses to auditory stimuli are reduced. Such activation pattern of A1 responses during auditory hallucination is consistent with aberrant gamma rhythms in schizophrenia observed during auditory tasks, raising the possibility that the pathology underlying abnormal gamma rhythms can account for auditory hallucination. Moreover, A1 receives top-down signals in the gamma frequency band from an adjacent association area (Par2), and cholinergic modulation regulates interactions between A1 and Par2. In this study, we utilized a computational model of A1 to ask if disrupted cholinergic modulation could underlie abnormal gamma rhythms in schizophrenia. Furthermore, based on our simulation results, we propose potential pathology by which A1 can directly contribute to auditory hallucination.