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The overarching purpose of this work is to investigate the effect of pupil-linked arousal systems and heart rate-linked arousal systems on behavior and the use of pupil dynamics as an index for adaptive behavior. These arousal systems are correlated with behavior states which have modulatory effects on perception and neural coding and are therefore integral in carrying out complex behaviors, such as decision-making. Additionally, cholinergic transmission is proposed to be critical for adaptive behavior via its modulation of thalamic neurons. While the first two chapters focus on the behavior output and the non-invasive ways to index arousal and behavior, the third aim attempts to investigate the neural circuits that underlie arousal���s effect on adaptive behavior by studying the pattern of cholinergic axons between brainstem nuclei and the thalamus, opening avenues for future investigation of their mechanistic impact on adaptive behavior. For characterization of the influence of arousal indexed by pupil dynamics and heartbeat dynamics, we simultaneously recorded electrocardiogram (ECG) and pupil size in head-fixed rats performing tactile discrimination tasks. We found both heartbeat dynamics and pupil size co-varied with behavioral outcomes, indicating behavior was dependent upon arousal indexed by both physiological signals. The potential difference between the effects of pupil-linked arousal and heart-rate linked arousal on behavior were estimated by constructing a Bayesian decoder predicting animals��� behavior from both signals prior to stimulus presentation. The decoder performed significantly better when using both physiological signals as inputs, suggesting both arousal systems, pupil-linked and heart rate-linked are not completely redundant. Additionally, the pupil size-based decoder failed to correctly predict animals��� behavior on a substantial portion of trials correctly predicted by the heart rate-based decoder, furthermore suggesting that both arousal systems exert different influences on animals��� behavior (Y.Liu, S. Narasimhan, B.J.Schriver, & Q.Wang, 2021). For characterization of how adaptive behavior in response to changing sensory environments depends on pupil-linked arousal, we recorded pupil size and behavioral output simultaneously during a similar tactile Go/No-Go discrimination task while systematically varying the statistics of the sensory environment. For each session, the probability of the presence of reward linked-stimuli (S+/Go) was randomly set at 80%, 50% or 20%. Animals adapted their behavioral responses and the task evoked pupil responses were bigger when the probability of S+ was lower. Impulsive licking (pre-stimulus response) decreased as the probability of S+ was lower. Animals became more liberal as the probability of S+ increased, in line with signal detection theory, indexed by a decrease in the decision criterion. We additionally found that reaction time decreased as the probability of S+ increased. A hierarchical drift diffusion model (HDDM) was used to model the decision-making process in these paradigms. We found the drift rate to monotonically vary with task difficulty. Animals performed sub-optimally to adaptively change their action in response to changes in the sensory environment and this adaptive adjustment in decision-making was indexed by their pupil dynamics. For studying the pattern of cholinergic axons between brainstem nuclei and the thalamus, we used two different AAV-retrograde constructs with two different reporters (mCherry and GFP) injected in the left and right hemisphere of the ventral-posterior-medial (VPM) thalamic nucleus of recombinant ChAT-cre mice. In agreement with previous studies done with conventional tracing methods, labelled projecting cells were traced to the LDT and PPN in the brainstem. Labelled cells were found in a clustered area of the LDT, suggesting a topographic distribution of the projections between the LDT and the VPM. A larger quantity of labelled cells was found in the PPN than the LDT. Additionally, bilateral injections with double reporters enabled us to find that a majority of cells project from the brainstem to the VPM project ipsilaterally while still displaying lateralization. This work provides methods and tools for future investigation of the functional impact of these projections between LDT, PPN and the VPM.