Although the hippocampus is a brain region involved in short-term memory, the molecular mechanisms underlying memory formation are not completely understood. Here we show that sphingosine 1-phosphate (S1P) plays a pivotal role in the formation of memory. Addition of S1P to rat hippocampal slices increased the rate of AMPA receptor-mediated miniature excitatory postsynaptic currents (mEPSCs) recorded from the CA3 region of the hippocampus. In addition long-term potentiation (LTP) observed in the CA3 region was potently inhibited by a sphingosine kinase (SphK) inhibitor and this inhibition was fully reversed by S1P. LTP was impaired in hippocampal slices specifically in the CA3 region obtained from SphK1-knockout mice, which correlates well with the poor performance of these animals in the Morris water maze test. These results strongly suggest that SphK/S1P receptor signaling plays an important role in excitatory synaptic transmission in the CA3 region of hippocampus and has profound effects on hippocampal function such as spatial learning.