The extensive physiological data on hippocampal theta rhythm provide an opportunity to evaluate hypotheses about the role of theta rhythm for hippocampal network function. Computational models based on these hypotheses help to link behavioral data with physiological measurements of different variables during theta rhythm. This paper reviews work on network models in which theta rhythm contributes to the following functions: (1) separating the dynamics of encoding and retrieval, (2) enhancing the context-dependent retrieval of sequences, (3) buffering of novel information in entorhinal cortex (EC) for episodic encoding, and (4) timing interactions between prefrontal cortex and hippocampus for memory-guided action selection. Modeling shows how these functional mechanisms are related to physiological data from the hippocampal formation, including (1) the phase relationships of synaptic currents during theta rhythm measured by current source density analysis of electroencephalographic data from region CA1 and dentate gyrus, (2) the timing of action potentials, including the theta phase precession of single place cells during running on a linear track, the context-dependent changes in theta phase precession across trials on each day, and the context-dependent firing properties of hippocampal neurons in spatial alternation (e.g., “splitter cells”), (3) the cholinergic regulation of sustained activity in entorhinal cortical neurons, and (4) the phasic timing of prefrontal cortical neurons relative to hippocampal theta rhythm. © 2005 Wiley-Liss, Inc.