The present study was undertaken to elucidate the role of PI3-kinase signaling in memory enhancing potential of caffeic acid phenethyl ester (CAPE) against cognitive defects in rats after centrally administered streptozotocin as a model of Alzheimer’s disease. The Morris water maze and elevated plus maze paradigms showed profound loss of memory in adult Wistar rats (180–200 g) injected with streptozotocin (3 mg/kg) bilaterally (STZ-ICV) on day 1 and 3. Intraperitoneal administration of CAPE (6 mg/kg, i.p., 28 days) attenuated STZ-ICV triggered memory loss in rats. Treatment with PI3-kinase inhibitor (wortmannin, 5 μg/rat, ICV) or NOS blocker (L-NAME, 20 mg/kg, i.p., 28 days) interfered with memory restorative function of CAPE in STZ treated rats. In biochemical analysis markers of oxidative stress (TBARS, GSH, SOD, CAT), nitrite, AChE, TNF-α, eNOS and NFκB were measured in brain of rats on day 28. Interestingly, L-Arginine (100 mg/kg, i.p., 28 days) group exhibited moderate (p > 0.05) decline in memory functions. The brain oxidative stress, TNF-α, AChE activity and NFκB levels were elevated, and eNOS level was lowered by STZ-ICV treatment. Administration of CAPE lowered oxidative stress, AChE, nitrite and TNF-α levels in brain of rats. The eNOS level was enhanced and NFκB level was decreased by CAPE in STZ treated rats. Wortmannin injection elevated the brain oxidative stress, AChE activity and TNF-α levels, and decreased the nitrite, eNOS and NFκB level. Rise of brain oxidative stress parameters, AChE activity, TNF-α, eNOS and NFκB levels, and decline in brain nitrite content was observed in L-NAME treated group. L-Arginine administration showed modest effects (p > 0.05) on oxidative stress parameters. Brain nitrite content was enhanced although eNOS, NFκB levels, and AChE activity was decimated by L-Arginine treatment. It can be concluded that PI3-kinase mediated nitric oxide facilitation is an essential feature of CAPE action in STZ-ICV treated rats.