Transplantation of human amniotic mesenchymal stem cells (hAM-MSCs) seems to be a promising strategy for the treatment of neurodegenerative disorders, including Alzheimer's disease (AD). However, the clinical therapeutic effects of hAM-MSCs and their mechanisms of action in AD remain to be determined. Here, we used amyloid precursor protein (APP) and presenilin1 (PS1) double-transgenic mice to evaluate the effects of hAM-MSC transplantation on AD-related neuropathology and cognitive dysfunction. We found that hAM-MSC transplantation into the hippocampus dramatically reduced amyloid-β peptide (Aβ) deposition and rescued spatial learning and memory deficits in APP/PS1 mice. Interestingly, these effects were associated with increasing in Aβ-degrading factors, elevations in activated microglia, and the modulation of neuroinflammation. Furthermore, enhanced hippocampal neurogenesis in the subgranular zone (SGZ) of the dentate gyrus (DG) and enhanced synaptic plasticity following hAM-MSC treatment could be another important factor in reversing the cognitive decline in APP/PS1 mice. Instead, the mechanism underlying the improved cognition apparently involves a robust increase in hippocampal synaptic density and neurogenesis that is mediated by brain-derived neurotrophic factor (BDNF). In conclusion, our data suggest that hAM-MSCs may be a new and effective therapy for the treatment of AD.