Previous studies have shown that cholinergic grafts derived from the medial septal nucleus are capable of restoring behavioral function in rats with lesions that sever the cholinergic inputs to the hippocampal formation. In this study, we demonstrate that intrahippocampal grafts of cholinergic-rich striatal tissue also ameliorate spatial memory deficits of rats with fornix lesions. We also found that atropine administration dramatically disrupted spatial navigation performance of rats with striatal grafts and control rats, thus suggesting that the striatal graft effects are mediated by cholinergic mechanisms of action. Measurements of high affinity choline uptake (HACU) and muscarinic receptor binding revealed that intrahippocampal striatal grafts increased HACU and normalized muscarinic receptor binding in animals with fornix lesions. Regression analyses demonstrated significant correlations between the amelioration of spatial memory deficits and hippocampal HACU and receptor binding. We conclude that intrahippocampal grafts of cholinergic-rich striatal tissue can ameliorate spatial memory deficits and that this amelioration is associated with the reinstatement of functional cholinergic terminations.