Background Cigarette smoking may increase the likelihood of developing panic disorder. Periods of nicotine withdrawal, in particular, may promote panic in individuals high in anxiety sensitivity. We examined the importance of nicotine withdrawal in the occurrence of smoking and panic. Methods We utilized a placebo‐controlled, double‐blind, randomized, crossover design. Fifty smokers underwent a breath‐holding (BH) challenge after the transdermal administration of nicotine on one test day and a placebo on another test day. Physiological and psychological variables were assessed at baseline as well as directly before and after the challenges. Results Nicotine abstinence induced a decrease in heart rate and systolic blood pressure (BP) before the BH procedure (heart rate: 78.80 ± 11.43 under nicotine, 70.88 ± 10.83 under placebo; systolic BP: 124.90 ± 11.34 under nicotine, 121.18 ± 13.44 under placebo) and shorter BH duration relative to the nicotine patch condition. Nicotine abstinence did not, though, increase fear reactivity to the challenge. Conclusions The findings for heart rate and BP are consistent with the stimulant properties of nicotine. The reduced capacity to maintain apnea under placebo might be due to carbon dioxide (CO2) hypersensitivity during periods of nicotine abstinence. The negative findings regarding fear reactivity might be due to BH being a relatively weak anxiogen. Future researchers are encouraged to employ CO2‐inhalation procedures to study the relationship between nicotine withdrawal and panic.