Reconstruction of the septohippocampal pathways by axons extending from embryonic cholinergic neuroblasts grafted into the neuron-depleted septum has been explored in the neonatal rat by using a novel lesioning and grafting protocol. Neonatal ablation of the basal forebrain cholinergic projection neurons, accompanied by extensive bilateral cholinergic denervation of the hippocampus and neocortex, was produced at postnatal day (PD) 4 by 192 immunoglobulin (IgG)-saporin intraventricularly. Four days later, cholinergic neuroblasts (from embryonic day 14 rats) were implanted bilaterally into the neuron-depleted septum by using a microtransplantation approach. The results show that homotopically implanted septal neurons survive and integrate well into the developing septal area, extending axons caudally along the myelinated fimbria-fornix and supracallosal pathways that are able to reach the appropriate targets in the denervated hippocampus and cingulate cortex as early as 4 weeks postgrafting. Moreover, the laminar innervation patterns established by the graft-derived axons closely resembled the normal ones and remained essentially unchanged up to at least 6 months, which was the longest postoperative time studied. The reinnervating fibers restored tissue choline acetyltransferase activity (up to 50% of normal) in the dorsal hippocampus and the parietooccipital cortex. Retrograde labeling with Fluoro-Gold from the host hippocampus combined with immunocytochemistry confirmed that most of the projecting neurons, indeed, were cholinergic. The results suggest that the graft-host interactions that are necessary for target-directed axon growth are present in the septohippocampal system during early postnatal maturation. Thus, the present approach may contribute to overcome the functional limitations inherent in the use of ectopically placed intrahippocampal transplants. © 1996 Wiley-Liss, Inc.