Hippocampal damage produces cognitive deficits similar to dementia and changes in emotional and motivated reactions similar to anxiolytic drugs. The gross electrical activity of the hippocampus contains a marked 'theta rhythm'. This is a relatively high voltage sinusoidal waveform, resulting from synchronous phasic firing of cells, variation in which correlates with behavioural state. Like the hippocampus, theta has been linked to both cognitive and emotional functions. Critically, it has recently been shown that restoration of theta-like rhythmicity can restore lost cognitive function. We review the effects of systemic administration of drugs on hippocampal theta elicited by stimulation of the reticular formation. We conclude that reductions in the frequency of reticular-elicited theta provide what is currently the best in-vivo means of detecting antianxiety drugs. We also suggest that increases in the power of reticular-elicited theta could detect drugs useful in the treatment of disorders, such as dementia, that involve memory loss. We argue that these functionally distinct effects should be seen as indirect and that each results from a change in a single form of cognitive-emotional processing that particularly involves the hippocampus.