Molecules that govern the formation, integrity, and function of the hippocampus remain an important area of investigation. Here we show that absence of the proneuropeptide processing enzyme, carboxypeptidase E (CPE) in CPE knock-out (KO) mice had a profound effect on memory, synaptic physiology, and the cytoarchitecture of the hippocampus in these animals. Adult CPE-KO mice displayed deficits in memory consolidation as revealed by the water-maze, object preference, and social transmission of food preference tests. These mice also showed no evoked long-term potentiation. Additionally, CPE-KO mice at 4 weeks of age and older, but not at 3 weeks of age, exhibited marked degeneration specifically of the pyramidal neurons in the hippocampal CA3 region which normally expresses high levels of CPE. Immunohistochemistry revealed that the neuronal marker, NeuN, was reduced, while the glial marker, GFAP, was increased, characteristic of gliosis in the CA3 area of CPE-KO mice. Calbindin staining indicated early termination of the mossy fibers before reaching the CA1 region in these mice. Thus, absence of CPE leads to degeneration of the CA3 neurons and perturbation of the cytoarchitecture of the hippocampus. Ex vivo studies showed that overexpression of CPE in cultured hippocampal neurons protected them against H(2)O(2) oxidative-stress induced cell death. These findings taken together indicate that CPE is essential for the survival of adult hippocampal CA3 neurons to maintain normal cognitive function.