Alzheimer’s disease (AD) is a degenerative disease of the central nervous system. It results in cognitive dysfunction due to the loss of functional neurons and a deficit of new neurons, which can lead to death in severe cases. Repairing damaged neurons by promoting hippocampal neurogenesis has become therapeutic modality to combat neurodegenerative diseases. The novel isoflavone alkaloid LY01, found in the edible fruits of Sophora alopecuroides L., has various neuroprotective effects. However, the molecular mechanism by which it promotes the proliferation of endogenous neural stem cells (NSCs) is not yet precisely known. The effects of LY01 were investigated in vivo and in vitro. In vivo experiments showed that LY01 could counteract the toxic damage of amyloid β-protein (Aβ), enhance the learning ability and memory capacity of 5×FAD mice, and improve the morphology of neurons in the hippocampal region. In vitro experiments showed that LY01 was effective against antioxidant damage, improved the cell morphology of C17.2 mouse NSCs after hydrogen peroxide injury, and increased cell viability. Both in vitro and in vivo experiments promoted NSC proliferation by upregulating the mRNA and protein levels of the critical genes of the Wnt/β-catenin pathway, which increased levels of doublecortin to facilitate new neuronal generation. This indicates that the ability of LY01 to counteract Aβ toxicity and alleviate oxidative damage in early AD is associated with activation of the Wnt/β-catenin signaling pathway to promote NSC proliferation and thus repair damaged neurons.