Phospho-tau accumulation and adult hippocampal neurogenesis (AHN) impairment both contribute importantly to the cognitive decline in Alzheimer’s disease (AD), but whether and how tau dysregulates AHN in AD remain poorly understood. Here, we found a prominent accumulation of phosphorylated tau in GABAergic interneurons in the dentate gyrus (DG) of AD patients and mice. Specific overexpression of human tau (hTau) in mice DG interneurons induced AHN deficits but increased neural stem cell-derived astrogliosis, associating with a downregulation of GABA and hyperactivation of neighboring excitatory neurons. Chemogenetic inhibition of excitatory neurons or pharmacologically strengthening GABAergic tempos rescued the tau-induced AHN deficits and improved contextual cognition. These findings evidenced that intracellular accumulation of tau in GABAergic interneurons impairs AHN by suppressing GABAergic transmission and disinhibiting neural circuits within the neurogenic niche, suggesting a potential of GABAergic potentiators for pro-neurogenic or cell therapies of AD. Display omitted •Phospho-tau is accumulated in DG GABAergic interneurons of AD patients and mice•Interneuron overexpressing human tau impairs adult hippocampal neurogenesis•Tau accumulation reduces GABA, disinhibits local circuits, and promotes astrogliosis•THIP, a δ-GABAAR agonist, improves neurogenesis and cognition in AD mice Impaired adult hippocampal neurogenesis contributes to the cognitive decline in Alzheimer’s disease. Zheng et al. report that phospho-tau accumulation in dentate gyrus GABAergic interneurons disrupts adult hippocampal neurogenesis and increased astrogliosis. Importantly, strengthening GABAergic signaling can rescue neurogenesis and improve cognitive functions in mouse models of Alzheimer’s disease.