Modulation of endogenous neurogenesis is regarded as a promising challenge in neuroprotection. In the rat model of hippocampal neurodegeneration obtained by Trimethyltin (TMT) administration (8 mg/kg), characterised by selective pyramidal cell loss, enhanced neurogenesis, seizures and cognitive impairment, we previously demonstrated a proliferative role of exogenous neuropeptide Y (NPY), on dentate progenitors in the early phases of neurodegeneration. To investigate the functional integration of newly-born neurons, here we studied in adult rats the long-term effects of intracerebroventricular administration of NPY (2 µg/2 µl, 4 days after TMT-treatment), which plays an adjuvant role in neurodegeneration and epilepsy. Our results indicate that 30 days after NPY administration the number of new neurons was still higher in TMT+NPY-treated rats than in control+saline group. As a functional correlate of the integration of new neurons into the hippocampal network, long-term potentiation recorded in Dentate Gyrus (DG) in the absence of GABAA receptor blockade was higher in the TMT+NPY-treated group than in all other groups. Furthermore, qPCR analysis of Kruppel-like factor 9, a transcription factor essential for late-phase maturation of neurons in the DG, and of the cyclin-dependent kinase 5, critically involved in the maturation and dendrite extension of newly-born neurons, revealed a significant up-regulation of both genes in TMT+NPY-treated rats compared with all other groups. To explore the early molecular events activated by NPY administration, the Sonic Hedgehog (Shh) signalling pathway, which participates in the maintenance of the neurogenic hippocampal niche, was evaluated by qPCR 1, 3 and 5 days after NPY-treatment. An early significant up-regulation of Shh expression was detected in TMT+NPY-treated rats compared with all other groups, associated with a modulation of downstream genes. Our data indicate that the neurogenic effect of NPY administration during TMT-induced neurodegeneration involves early Shh pathway activation and results in a functional integration of newly-generated neurons into the local circuit.