Neuronal development and differentiation require a variety of cell interactions. Diffusible molecules from target neurons play an important part in mediating such interactions. Our early studies used explant culture technique to examine the factors that enhance the differentiation of septo-hippocampal cholinergic neurons, and they revealed that several components resident in the hippocampus are involved in the differentiation of presynaptic cholinergic neurons in the medial septal nucleus. One of these components, originally purified from young rat hippocampus, is a novel undecapeptide (hippocampal cholinergic neurostimulating peptide; HCNP); this enhances the production of ChAT, but not of AchE. Later experiments revealed that: (1) a specific receptor appears to mediate this effect; (2) NGF and HCNP act cooperatively to regulate cholinergic phenotype development in the medial septal nucleus in culture; and (3) these two molecules differ both in their mechanism of release from the hippocampus and their mechanism of action on cholinergic neurons. The amino acid sequence deduced from base sequence analysis of cloned HCNP-precursor protein cDNA shows that HCNP is located at the N-terminal domain of its precursor protein. The 21 kDa HCNP precursor protein shows homology with other proteins, and it functions not only as an HCNP precursor, but also as a binding protein for ATP, opioids and phosphatidylethanolamine. The distribution and localization of HCNP-related components and the expression of their mRNAs support the notion that the precursor protein is multifunctional. In keeping with its multiple functions, the multiple enhancers and promoters found in the genomic DNA for HCNP precursor protein may be involved in the regulation of its gene in a variety of cells and at different stages of development. Furthermore, several lines of evidence obtained from studies of humans and animal models suggest that certain types of memory and learning disorders are associated with abnormal accumulation and expression of HCNP analogue peptide and/or its precursor protein mRNA in the hippocampus.