Cell therapy is thought to have a central role in restorative therapy, which aims to restore the function of the damaged nervous system. Neural stem cells (NSCs) can differentiate into neurons, astrocytes and oligodendrocytes. The purpose of this study was to evaluate the therapeutic effects of transplanting NSCs into rats which have the animal model of Alzheimer's disease (AD). NSCs from the hippocampus and NSCs-derived glial cells labeled with 5'-Bromo-2'-deoxyuridine (BrdU) were transplanted into two groups of transected rat basal forebrain. Nestin staining, glial fibrillary acidic protein (GFAP) staining and double-labeling immunofluorescence were used to detect the engrafted cells in the basal forebrain. Immunohistochemical detection of p75(NGFR) showed that the number of cholinergic neurons of the NSCs-transplanted group was significant higher than that of the glia-transplanted group in medial septum (MS) and vertical diagonal branch (VDB) (P<0.05). Learning and memory abilities were also measured by Y-maze test. The results indicate that transplanted NSCs can differentiate into cholinergic neurons, which may play an important role in the therapeutic effects of transplanted NSCs.