Reduced gamma-aminobutyric acid (GABA) inhibition has been implicated in both anxiety and epilepsy. GAD65-/- (NOD/LtJ) mice have significantly decreased basal GABA levels in the brain and a lowered threshold for seizure generation. One fifth of GAD65 -/- mice experienced stress-induced seizures upon exposure to an open field at 4 weeks of age. In each successive week until 8 weeks of age, the latency to seizures decreased with prior seizure experience. 100% of GAD65-/- mice exhibited stress-induced seizures by the end of 8 weeks. GAD65-/- mice also exhibited marked impairment in open field exploratory behavior and deficits in spatial learning acquisition on a Barnes maze. Anxiety-like behavior in an open field was observed prior to seizure onset and was predictive of subsequent seizures. Immunohistochemical characterization of interneuron subtypes in GAD65-/- mice showed a selective decrease in GABA and neuropeptide Y (NPY) levels and no change in calbindin (CLB) or calretinin (CLR) immunoreactivity in the hippocampus. Stem cells from the medial ganglionic eminence (MGE) were injected into the hippocampal hilus to restore GABAergic interneurons. One week after transplantation, MGE-transplanted mice demonstrated significant seizure resistance compared to sham surgical controls. The percent area of GFP+ MGE graft in the hippocampus correlated significantly with the increase in seizure latency. Our data indicate that impaired GABAergic neurotransmission can cause anxiety-like behavior and stress-induced seizures that can be rescued by MGE stem cell transplantation.