The present study examined the effects of honokiol on amyloid-β (Aβ) induced cognitive impairment and the underlying mechanisms in APPswe/PS1dE9 transgenic mice. The results showed that honokiol administration (20 mg/kg per day, intraperitoneally) for 6 weeks effectively improved spatial memory deficits in APPswe/PS1dE9 transgenic mice. Honokiol significantly lowered Aβ production and senile plaque deposition by down-regulating BACE1 and enhancing Aβ phagocytosis by microglia. Meanwhile, honokiol reduced glial cell activation and the production of proinflammatoty cytokines (TNF-α, IL-1β, and IL-6 levels). Moreover, it was found that honokiol increased the transcriptional activity and protein levels of PPARγ. However, all the beneficial effects of honokiol on pathological changes including biochemistry and cognitive function could be blocked by GW9662, a specific PPARγ inhibitor. These results suggested that honokiol may be a natural PPARγ agonist, acting to attenuate Aβ generation and neuroinflammation. Therefore, honokiol might be a promising agent for the treatment of AD.