Alzheimer's disease (AD) is characterized by the accumulation of β-amyloid peptide (Aβ). There is increasing evidence that depression may precede AD and may be an early manifestation of dementia, suggesting common mechanisms underlying both diseases. Ligands targeting the mitochondrial translocator protein (18 kDa) (TSPO), promote neurosteroidogenesis and may be neuroprotective. Moreover, TSPO is upregulated in AD. To study whether the TSPO ligand XBD173 may exert early neuroprotective effects in AD pathology we investigated the impact of XBD173 on amyloid toxicity and neuroplasticity in mouse models. We show that XBD173 (emapunil), via neurosteroid-mediated signaling via delta subunit-containing GABAA receptors, prevents the neurotoxic effect of Aβ on long-term potentiation (CA1-LTP) in the hippocampus and prevents the loss of spines. Chronic but not acute administration of XBD173 ameliorates spatial learning deficits in transgenic AD mice with arctic mutation (ArcAβ) mice. The heterozygous TSPO-knockout crossed with the transgenic arctic mutation model of AD mice (het TSPOKO X ArcAβ) treated with XBD173 does not show this improvement in spatial learning suggesting TSPO is needed for procognitive effects of XBD173. The neuroprotective profile of XBD173 in AD pathology is further supported by a reduction in plaques and soluble Aβ levels in the cortex, increased synthesis of neurosteroids, rescued spine density, reduction of complement protein C1q deposits, and reduced astrocytic phagocytosis of functional synapses both in the hippocampus and cortex. Our findings suggest that XBD173 may exert therapeutic effects via TSPO in a mouse model of AD.