The retrosplenial cortex (RSC) receives cholinergic afferent fibers from the medial septal nucleus and diagonal band of Broca (DBB) by way of the cingulate bundle and the fornix. Bilateral lesions of both the cingulate and fornix pathways result in a complete depletion of cholinergic input to the RSC. In the present study we have examined the effects of transplanting cholinergic neurons from fetal rat pups to the RSC of adult rats following lesions of the cingulate bundle and fornix. The animals with lesions exhibited severe spatial memory impairments with a complete loss of extrinsic cholinergic afferents to the RSC. Animals with intraretrosplenial cortical transplants exhibited significant improvements in learning and memory performance as revealed by decreased escape latencies in spatial reference memory tests, increased numbers of platform crossings in spatial navigation tests, and a higher percentage of correct choices in a spatial working memory task. These improvements appeared to be cholinergically mediated because atropine administration significantly disrupted spatial navigation performance. The survival of the transplanted cholinergic neurons and their innervation of the RSC were characterized using a monoclonal antibody to choline acetyltransferase (ChAT). The staining of graft-derived ChAT-positive fibers also revealed a pattern of innervation that mimicked that of the cholinergic input in normal animals. These results indicate that intraretrosplenial cortical transplants of cholinergic neurons can rectify spatial memory deficits produced by the loss of intrinsic cholinergic afferents from the medial septal nucleus.