Whereas recent studies have elucidated principles for representation of information within the entorhinal cortex, less is known about the molecular basis for information processing by entorhinal neurons. The HCN1 gene encodes ion channels that mediate hyperpolarization-activated currents (I(h)) that control synaptic integration and influence several forms of learning and memory. We asked whether hyperpolarization-activated, cation nonselective 1 (HCN1) channels control processing of information by stellate cells found within layer II of the entorhinal cortex. Axonal projections from these neurons form a major component of the synaptic input to the dentate gyrus of the hippocampus. To determine whether HCN1 channels control either the resting or the active properties of stellate neurons, we performed whole-cell recordings in horizontal brain slices prepared from adult wild-type and HCN1 knock-out mice. We found that HCN1 channels are required for rapid and full activation of hyperpolarization-activated currents in stellate neurons. HCN1 channels dominate the membrane conductance at rest, are not required for theta frequency (4-12 Hz) membrane potential fluctuations, but suppress low-frequency (<4 Hz) components of spontaneous and evoked membrane potential activity. During sustained activation of stellate cells sufficient for firing of repeated action potentials, HCN1 channels control the pattern of spike output by promoting recovery of the spike afterhyperpolarization. These data suggest that HCN1 channels expressed by stellate neurons in layer II of the entorhinal cortex are key molecular components in the processing of inputs to the hippocampal dentate gyrus, with distinct integrative roles during resting and active states.