Banhasasim-tang (BHS) is an herbal medicine that has been widely used in East Asia to treat various symptoms associated with upper abdomen swelling. BHS has not been studied previously for neuroinflammation or cognitive disorder. Here, we use a lipopolysaccharide (LPS) model to investigate the effects and mechanisms of BHS in neuroinflammation and cognitive impairment of mice. We used a mouse model of LPS-induced cognitive impairment and neuroinflammation and examined whether administration of BHS prevents these deficits via Morris water maze test, passive avoidance test, histopathological analysis, Western blotting, and real-time reverse transcription polymerase chain reaction (RT-qPCR). We found via behavioral tests that BHS treatment effectively prevented LPS-induced memory loss and neuronal damage in mice. Histopathological analysis of mouse brains revealed that BHS inhibited LPS-induced expression of microglial and astrocyte activation markers. Furthermore, BHS inhibits the production of markers related to neurodegeneration, amyloidogenesis, and inflammation, and mRNA expression of inflammatory mediators in mouse brain tissue. Additionally, BHS pretreatment effectively inhibited generation of inflammatory factors and pathways in BV2 microglial cells stimulated by LPS. These observations indicate that BHS is effective in preventing cognitive impairment caused by neuroinflammation and has strong potential as a candidate treatment for neuronal inflammatory diseases.