The allatostatin receptor (AlstR)/ligand inactivation system enables potent regulation of neuronal circuit activity. To examine how different cell types participate in memory formation, we have used this system through Cre-directed, cell-type specific expression in mouse hippocampal CA1 in vivo and examined functional effects of inactivation of excitatory vs. inhibitory neurons on memory formation. We chose to use a hippocampus-dependent behavioral task involving location-dependent object recognition (LOR). The double transgenic mice, with the AlstRs selectively expressed in excitatory pyramidal neurons or inhibitory interneurons, were cannulated, targeting dorsal hippocampus to allow the infusion of the receptor ligand (the allatostatin [AL] peptide) in a time dependent manner. Compared to control animals, AL-infused animals showed no long-term memory for object location. While inactivation of excitatory or inhibitory neurons produced opposite effects on hippocampal circuit activity in vitro, the effects in vivo were similar. Both types of inactivation experiments resulted in mice exhibiting no long-term memory for object location. Together, these results demonstrate that the Cre-directed, AlstR-based system is a powerful tool for cell-type specific manipulations in a behaving animal and suggest that activity of either excitatory neurons or inhibitory interneurons is essential for proper long-term object location memory formation.