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Neuron-derived estrogen and neural function17β-estradiol (E2) is produced from androgens via the action of the enzyme aromatase. E2 is known to be made in neurons in the brain, but its precise functions in the brain are unclear. We created a forebrain neuron-specific aromatase knockout (FBN-ARO-KO) mouse model to deplete neuron-derived E2 in the forebrain of mice. Under normal conditions, FBN-ARO-KO mice showed a 70-80% decrease in aromatase and forebrain E2 levels. Male and female FBN-ARO-KO mice exhibited significant deficits in forebrain spine and synaptic density, as well as hippocampal-dependent cognitive functions. Reinstating forebrain E2 levels via exogenous in vivo E2 administration was able to rescue both the molecular and behavioral defects in FBN-ARO-KO mice. Furthermore, electrophysiological study suggested normal long-term potentiation (LTP) induction, but significantly decreased amplitude in FBN-ARO-KO mice which could be fully rescued by acute E2 treatment in vitro. Mechanistic studies revealed that FBN-ARO-KO mice had compromised rapid kinase (AKT, ERK) and CREB-BDNF signaling in the hippocampus and cerebral cortex. After global cerebral ischemia (GCI), ovariectomized female FBN-ARO-KO mice had significantly attenuated aromatase and hippocampal E2 levels. Intriguingly, FBN-ARO-KO mice exhibited a robust reduction in astrocyte activation, as well as exacerbated neuronal damage and worse cognitive dysfunction after GCI. Similar results were observed in intact male mice. RNA-seq analysis revealed alterations in pathways and genes associated with astrocyte activation, neuroinflammation and oxidative stress in FBN-ARO-KO mice. The compromised astrocyte activation in FBN-ARO-KO mice was associated with robust downregulation of the astrocyte-derived neurotrophic factors, BDNF and IGF-1, as well as the astrocytic glutamate transporter, GLT-1. In vivo E2 replacement rescued the compromised reactive astrogliosis and cognitive deficits. Moreover, neuronal FGF2, which acts in a paracrine manner to suppress astrocyte activation, was dramatically increased in FBN-ARO-KO neurons. Interestingly, blocking FGF2 signaling in astrocytes by central injection of an FGFR3 antibody was able to reverse the diminishment in neuroprotective astrocyte reactivity, and attenuate neuronal damage in FBN-ARO-KO mice. Collectively, our data provides novel genetic evidence for the roles of neuron-derived E2 in regulating synaptic plasticity, cognitive function in the non-injured brain, and astrocyte activation and neuroprotection in the injured brain.