β-site APP cleaving enzyme 1 (BACE1) is the β-secretase enzyme required for generating pathogenic β-amyloid (Aβ) peptides in Alzheimer's disease (AD). BACE1 knockout mice lack Aβ and are phenotypically normal, suggesting that therapeutic inhibition of BACE1 may be free of mechanism-based side effects. However, direct evidence that BACE1 inhibition would improve cognition is lacking. Here we show that BACE1 null mice engineered to overexpress human APP (BACE1^−/−·Tg2576⁺) are rescued from Aβ-dependent hippocampal memory deficits. Moreover, impaired hippocampal cholinergic regulation of neuronal excitability found in the Tg2576 AD model is ameliorated in BACE1^−/−·Tg2576⁺ bigenic mice. The behavioral and electrophysiological rescue of deficits in BACE1^−/−·Tg2576⁺ mice is correlated with a dramatic reduction of cerebral Aβ40 and Aβ42 levels and occurs before amyloid deposition in Tg2576 mice. Our gene-based approach demonstrates that lower Aβ levels are beneficial for AD-associated memory impairments, validating BACE1 as a therapeutic target for AD.