The hippocampus is necessary for the acquisition and retrieval of declarative memories. The best-characterized sensory input to the hippocampus is the perforant path projection from layer II of entorhinal cortex (EC) to the dentate gyrus. Signals are then processed sequentially in the hippocampal CA fields before returning to the cortex via CA1 pyramidal neuron spikes. There is another EC input-the temporoammonic (TA) pathway-consisting of axons from layer III EC neurons that make synaptic contacts on the distal dendrites of CA1 neurons. Here we show that this pathway modulates both the plasticity and the output of the rat hippocampal formation. Bursts of TA activity can, depending on their timing, either increase or decrease the probability of Schaffer-collateral (SC)-evoked CA1 spikes. TA bursts can also significantly reduce the magnitude of synaptic potentiation at SC-CA1 synapses. The TA-CA1 synapse itself exhibits both long-term depression (LTD) and long-term potentiation (LTP). This capacity for bi-directional plasticity can, in turn, regulate the TA modulation of CA1 activity: LTP or LTD of the TA pathway either enhances or diminishes the gating of CA1 spikes and plasticity inhibition, respectively.