Deficits in spatial navigation are among the early symptoms in AD patients, consistent with the hippocampal formation being necessary for spatial computations and with disease onset in the hippocampal formation. Although it is recognized that early symptoms correspond to brain regions that are affected early in the disease, it is not clear whether further cognitive decline is solely caused by a spreading cellular pathology, or whether a focal pathology can by itself cause aberrant neuronal activity in a larger network. These possibilities cannot be distinguished in standard disease models, which broadly express AD-related proteins across brain regions. We therefore generated a mouse model in which the expression of mutant human APP was limited to hippocampal CA3 cells (CA3-APP mice). We first asked whether the limited pathology in CA3 can result in memory deficits and found memory impairments in CA3-APP mice. By recording neuronal activity in the hippocampus, during the memory task, we asked to what extent pathological neuronal activity patterns emerged in a brain in the different hippocampus subregions. We found that early circuit dysfunction did not include differences in the spatial firing patterns of place cells, but were rather encompassed by a reduced theta oscillation frequency and disruption in sequential firing of CA1 place cells during the task. This underlines the influence that altered network function plays on the memory deficits associated with AD, indicating that the disease progression can be driven by altered network mechanisms rather than changes at the level of individual cells.