The role of the extracellular matrix molecule tenascin-R (TN-R) in regulation of synaptic transmission and plasticity in the CA1 region of the hippocampus was studied using mice deficient in expression of this molecule. The mutant mice showed normal NMDA-receptor-mediated currents but an impaired NMDA-receptor-dependent form of long-term potentiation (LTP) as compared to wild-type littermates. Reduced LTP in mutants was accompanied by increased basal excitatory synaptic transmission in synapses formed on CA1 pyramidal neurons. A possible mechanism for increased excitatory synaptic transmission in mutants could involve modulation of inhibition, since TN-R and its associated carbohydrate HNK-1 decorate perisomatic interneurons. Indeed, the amplitudes of unitary perisomatic inhibitory currents were smaller in mutants compared to wild-type mice. Thus, our data show that a deficit in TN-R results in reduction of perisomatic inhibition and, as a consequence, in an increase of excitatory synaptic transmission in CA1 to the levels close to saturation, impeding further expression of LTP.