The CA3 region of the hippocampus is important for rapid encoding of memory. Computational theories have proposed specific roles in hippocampal function and memory for the sparse inputs from the dentate gyrus to CA3 and for the extended local recurrent connectivity that gives rise to the CA3 autoassociative network. Recently, we have gained considerable new insight into the operation and plasticity of CA3 circuits, including the identification of novel forms of synaptic plasticity and their underlying mechanisms, and structural plasticity in the GABAergic control of CA3 circuits. In addition, experimental links between synaptic plasticity of CA3 circuits and memory are starting to emerge.