Rising life expectancies coupled with an increasing awareness of age-related cognitive decline have led to the unwarranted use of psychopharmaceuticals, including acetylcholinesterase inhibitors (AChEIs), by significant numbers of healthy older individuals. This trend has developed despite very limited data regarding the effectiveness of such drugs on non-clinical groups and recent work indicates that AChEIs can have negative cognitive effects in healthy populations. For the first time, we use a combination of EEG and simultaneous EEG/fMRI to examine the effects of a commonly prescribed AChEI (donepezil) on cognition in healthy older participants. The short- and long-term impact of donepezil was assessed using two double-blind, placebo-controlled trials. In both cases, we utilised cognitive (paired associates learning (CPAL)) and electrophysiological measures (resting EEG power) that have demonstrated high-sensitivity to age-related cognitive decline. Experiment 1 tested the effects of 5 mg/per day dosage on cognitive and EEG markers at 6-hour, 2-week and 4-week followups. In experiment 2, the same markers were further scrutinised using simultaneous EEG/fMRI after a single 5 mg dose. Experiment 1 found significant negative effects of donepezil on CPAL and resting Alpha and Beta band power. Experiment 2 replicated these results and found additional drug-related increases in the Delta band. EEG/fMRI analyses revealed that these oscillatory differences were associated with activity differences in the left hippocampus (Delta), right frontal-parietal network (Alpha), and default-mode network (Beta). We demonstrate the utility of simple cognitive and EEG measures in evaluating drug responses after acute and chronic donepezil administration. The presentation of previously established markers of age-related cognitive decline indicates that AChEIs can impair cognitive function in healthy older individuals. To our knowledge this is the first study to identify the precise neuroanatomical origins of EEG drug markers using simultaneous EEG/fMRI. The results of this study may be useful for evaluating novel drugs for cognitive enhancement.