Stem cell-based therapy is a promising treatment strategy for neurodegenerative diseases such as Alzheimer's disease (AD). However, the mechanism underlying the maintenance of renewal and replacement capabilities of endogenous progenitor cells or engrafted stem cells in a pathological environment remains elusive. To investigate the effect of astragaloside IV (ASI) on the proliferation and differentiation of the engrafted neural stem cells (NSCs), we cultured NSCs from the hippocampus of E14 rat embryos, treated the cells with ASI, and then transplanted the cells into the hippocampus of rat AD models. In vitro experimentation showed that 10−5 M ASI induced NSCs to differentiate into β-tubulin III+ and GFAP+ cells. NSCs transplantation into rat AD models resulted in improvements in learning and memory, especially in the ASI-treated groups. ASI treatment resulted in an increase in the number of β-tubulin III+ cells in the hippocampus. Further investigation showed that ASI inhibited PS1 expression in vitro and in vivo. The high-dose ASI downregulated the Notch intracellular domain, whereas the low-dose ASI increased Notch-1 and NICD. In conclusion, ASI treatment resulted in improvements in learning and memory of AD models by promoting NSC proliferation and differentiation partly through the Notch signal pathway.