Systemic inflammation can impair cognition with relevance to dementia, delirium and post-operative cognitive dysfunction. Episodes of delirium also contribute to rates of long-term cognitive decline, implying that these acute events induce injury. Whether systemic inflammation-induced acute dysfunction and acute brain injury occur by overlapping or discrete mechanisms remains unexplored. Here we show that systemic inflammation, induced by bacterial LPS, produces both working-memory deficits and acute brain injury in the degenerating brain and that these occur by dissociable IL-1-dependent processes. In normal C57BL/6 mice, LPS (100 µg/kg) did not affect working memory but impaired long-term memory consolidation. However prior hippocampal synaptic loss left mice selectively vulnerable to LPS-induced working memory deficits. Systemically administered IL-1 receptor antagonist (IL-1RA) was protective against, and systemic IL-1β replicated, these working memory deficits. Dexamethasone abolished systemic cytokine synthesis and was protective against working memory deficits, without blocking brain IL-1β synthesis. Direct application of IL-1β to ex vivo hippocampal slices induced non-synaptic depolarisation and irreversible loss of membrane potential in CA1 neurons from diseased animals and systemic LPS increased apoptosis in the degenerating brain, in an IL-1RI-dependent fashion. The data suggest that LPS induces working memory dysfunction via circulating IL-1β but direct hippocampal action of IL-1β causes neuronal dysfunction and may drive neuronal death. The data suggest that acute systemic inflammation produces both reversible cognitive deficits, resembling delirium, and acute brain injury contributing to long-term cognitive impairment but that these events are mechanistically dissociable. These data have significant implications for management of cognitive dysfunction during acute illness.