Syndecan-3 (N-syndecan) is a transmembrane heparan sulfate proteoglycan expressed predominantly in the nervous system in a developmentally regulated manner. Syndecan-3 has been suggested to play a role in the development and plasticity of neuronal connections by linking extracellular signals to the regulation of the cytoskeleton. To study its physiological functions, we produced mice deficient in syndecan-3 by gene targeting. The mutant animals are healthy, are fertile, and have no apparent defects in the structure of the brain. We focused on characterizing the functions of the hippocampus, a brain area where expression of syndecan-3 is prominent in adults. Mice lacking syndecan-3 exhibited an enhanced level of long-term potentiation (LTP) in area CA1, while basal synaptic transmission and short-term plasticity were similar to those in wild-type animals. Further, the mutant mice were not responsive to the syndecan-3 ligand heparin-binding growth-associated molecule, which inhibits LTP in area CA1 in wild-type animals. Behavioral testing of the syndecan-3-deficient mice revealed impaired performance in tasks assessing hippocampal functioning. We suggest that syndecan-3 acts as an important modulator of synaptic plasticity that influences hippocampus-dependent memory.