Alzheimer's disease (AD) is the leading progressive neurodegenerative disorder afflicting 35.6 million people worldwide. There is no therapeutic agent that can slow or stop the progression of AD. Human studies show that besides loss of cognition/learning ability, neuropsychological symptoms such as anxiety and seizures are seen as high as 70 and 17 % respectively in AD patients, suggesting dysfunction of GABAergic neurotransmission contributes to pathogenesis of AD. Dihydromyricetin (DHM) is a plant flavonoid and a positive allosteric modulator of GABAARs we developed recently (Shen et al. in J Neurosci 32(1):390-401, 2012 [1]). In this study, transgenic (TG2576) and Swedish transgenic (TG-SwDI) mice with AD-like pathology were treated with DHM (2 mg/kg) for 3 months. Behaviorally, DHM-treated mice show improved cognition, reduced anxiety level and seizure susceptibility. Pathologically, DHM has high efficacy to reduce amyloid-β (Aβ) peptides in TG-SwDI brain. Further, patch-clamp recordings from dentate gyrus neurons in hippocampal slices from TG-SwDI mice showed reduced frequency and amplitude of GABAAR-mediated miniature inhibitory postsynaptic currents, and decreased extrasynaptic tonic inhibitory current, while DHM restored these GABAAR-mediated currents in TG-SwDI. We found that gephyrin, a postsynaptic GABAAR anchor protein that regulates the formation and plasticity of GABAergic synapses, decreased in hippocampus and cortex in TG-SwDI. DHM treatment restored gephyrin levels. These results suggest that DHM treatment not only improves symptoms, but also reverses progressive neuropathology of mouse models of AD including reducing Aβ peptides, while restoring gephyrin levels, GABAergic transmission and functional synapses. Therefore DHM is a promising candidate medication for AD. We propose a novel target, gephyrin, for treatment of AD.