Differential isoform expression and phosphorylation of protein tau are believed to regulate the assembly and stabilization of microtubuli in fetal and adult neurons. To define the functions of tau in the developing and adult brain, we generated transgenic mice expressing the human tau-4R/2N (htau-4R) isoform on a murine tau null background, by a knockout/knockin approach (tau-KOKI). The main findings in these mice were the significant increases in hippocampal volume and neuronal number, which were sustained throughout adult life and paralleled by improved cognitive functioning. The increase in hippocampal size was found to be due to increased neurogenesis and neuronal survival. Proliferation and neuronal differentiation were further analyzed in primary hippocampal cultures from tau-KOKI mice, before and after htau-4R expression onset. In absence of tau, proliferation increased and both neurite and axonal outgrowth were reduced. Htau-4R expression suppressed proliferation, promoted neuronal differentiation, and restored neurite and axonal outgrowth. We suggest that the tau-4R isoform essentially contributes to hippocampal development by controlling proliferation and differentiation of neuronal precursors.