Recent studies indicate that astrocytes play an integral role in neural and synaptic functioning. To examine the implications of these findings for neurobehavioral plasticity we investigated the involvement of astrocytes in memory and long-term potentiation (LTP), using a mouse model of impaired learning and synaptic plasticity caused by genetic deletion of the interleukin-1 receptor type I (IL-1RI). Neural precursor cells (NPCs), derived from either wild type (WT) or IL-1 receptor knockout (IL-1rKO) neonatal mice, were labeled with bromodeoxyuridine (BrdU) and transplanted into the hippocampus of either IL-1rKO or WT adult host mice. Transplanted NPCs survived and differentiated into astrocytes (expressing GFAP and S100β), but not to neurons or oligodendrocytes. The NPCs-derived astrocytes from WT but not IL-1rKO mice displayed co-localization of GFAP with the IL-1RI. Four to twelve weeks post-transplantation, memory functioning was examined in the fear-conditioning and the water maze paradigms and LTP of perforant path-dentate gyrus synapses was assessed in anesthetized mice. As expected, IL-1rKO mice transplanted with IL-1rKO cells or sham operated displayed severe memory disturbances in both paradigms as well as a marked impairment in LTP. In contrast, IL-1rKO mice transplanted with WT NPCs displayed a complete rescue of the impaired memory functioning as well as partial restoration of LTP. These findings indicate that astrocytes play a critical role in memory functioning and LTP, and specifically implicate astrocytic IL-1 signaling in these processes. The results suggest novel conceptualization and therapeutic targets for neuropsychiatric disorders characterized by impaired astrocytic functioning concomitantly with disturbed memory and synaptic plasticity.