Unilateral fimbria-fornix lesions were made by aspiration in female Sprague-Dawley rats. In a group of these rats, fetal septal tissue was transplanted into the lesion cavity. Lesion of the fimbria-fornix resulted in a reduction of cholinergic input to the hippocampal formation as indicated by the loss of acetylcholinesterase (AChE)-positive staining in all ipsilateral hippocampal laminae and a loss of [3H]hemicholinium-3 binding to cholinergic terminals in the strata oriens (82% reduction) and radiatum (77% reduction) of areas CA2 and CA3 and in the molecular layer of the dentate gyrus (83% reduction). In contrast, the density of muscarinic receptor binding ([3H]QNB) increased in the strata oriens (80% increase) and radiatum (70% increase) in areas CA2-CA4. This was shown to be due to an actual increase in receptor number (Bmax) and not to a change in affinity (KD). Analysis of muscarinic receptor subtypes indicated that the increase in receptor binding in the stratum radiatum was of the M-1 subtype ([3H]-pirenzepine) and in the stratum oriens was of the M-2 subtype ([3H]QNB + 100 nM pirenzepine). In the host hippocampus after fetal septal graft, the staining for AChE, the binding of [3H]hemicholinium-3, and the binding of muscarinic receptors (both the M-1 and M-2 receptor subtypes) were all comparable to nonlesioned control values. These data indicate that the fetal septal grafts have reinnervated the host hippocampus and have made synaptic contact with host cells in a manner capable of regulating postsynaptic muscarinic receptors.