Activation of neuropeptide S (NPS) signaling has been found to produce arousal, wakefulness, anxiolytic-like behaviors, and enhanced memory formation. In order to further study physiological functions of the NPS system, we generated NPS precursor knockout mice by homologous recombination in embryonic stem cells. NPS mice were viable, fertile, and anatomically normal, when compared to their wild-type and heterozygous littermates. The total number of NPS neurons-although no longer synthesizing the peptide - was not affected by the knockout, as analyzed in NPS /NPS double transgenic mice. Analysis of behavioral phenotypes revealed significant deficits in exploratory activity in NPS mice. NPS precursor knockout mice displayed attenuated arousal in the hole board test, visible as reduced total nose pokes and number of holes inspected, that was not confounded by increased repetitive or stereotypic behavior. Importantly, long-term memory was significantly impaired in NPS mice in the inhibitory avoidance paradigm. NPS precursor knockout mice displayed mildly increased anxiety-like behaviors in three different tests measuring responses to stress and novelty. Interestingly, heterozygous littermates often presented behavioral deficits similar to NPS mice or displayed intermediate phenotype. These observations may suggest limited ligand availability in critical neural circuits. Overall, phenotypical changes in NPS mice are similar to those observed in NPS receptor knockout mice and support earlier findings that suggest major functions of the NPS system in arousal, regulation of anxiety and stress, and memory formation.