Immune challenge during pregnancy is associated with preterm birth and poor perinatal development. The mechanisms of these effects are not known. 5α-Pregnan-3α-ol-20-one (3α,5α-THP), the neuroactive metabolite of progesterone, is critical for neurodevelopment and stress responses, and can influence cognition and affective behaviours. To develop an immune challenge model of preterm birth, pregnant Long-Evans rat dams were administered lipopolysaccharide [LPS; 30 μg/kg/ml, intraperitoneal (IP)], interleukin-1β (IL-1β; 1 μg/rat, IP) or vehicle (0.9% saline, IP) daily on gestational days 17-21. Compared to control treatment, prenatal LPS or IL-1β reduced gestational length and the number of viable pups born. At 28-30 days of age, male and female offspring of mothers exposed to prenatal IL-1β had reduced cognitive performance in the object recognition task compared to controls. In females, but not males, prenatal IL-1β reduced anxiety-like behaviour, indicated by entries to the centre of an open field. In the hippocampus, progesterone turnover to its 5α-reduced metabolites was lower in prenatally exposed IL-1β female, but not in male offspring. IL-1β-exposed males and females had reduced oestradiol content in hippocampus, medial prefrontal cortex and diencephalon compared to controls. Thus, immune stress during late pregnancy reduced gestational length and negatively impacted birth outcomes, hippocampal function and central neurosteroid formation in the offspring.