Sepsis-associated encephalopathy (SAE) is characterized by high incidence and mortality rates, with limited treatment options available. The underlying mechanisms and pathogenesis of SAE remain unclear. Annexin A1 (ANXA1), a membrane-associated protein, is involved in various in vivo pathophysiological processes. This study aimed to explore the neuroprotective effects and mechanisms of a novel bioactive ANXA1 tripeptide (ANXA1sp) in SAE. Forty Sprague-Dawley rats were randomly divided into four groups (n = 10 each): control, SAE (intraperitoneal injection of lipopolysaccharide), vehicle (SAE + normal saline), and ANXA1sp (SAE + ANXA1sp) groups. Changes in serum inflammatory factors (interleukin-6 [IL-6], tumor necrosis factor-α [TNF-α]), hippocampal reactive oxygen species (ROS), mitochondrial membrane potential (MMP), and adenosine triphosphate (ATP) levels were measured. The Morris water maze and Y maze tests were used to assess learning and memory capabilities in the rats. Further, changes in peroxisome proliferator-activated receptor-gamma (PPAR-γ) and apoptosis-related protein expression were detected using western blot. The IL-6, TNF-α, and ROS levels were significantly increased in the SAE group compared with the levels in the control group. Intraperitoneal administration of ANXA1sp led to a significant decrease in the IL-6, TNF-α, and ROS levels (p < 0.05). Compared with the SAE group, the ANXA1sp group exhibited reduced escape latency on day 5, a significant increase in the number of platform crossings and the percent spontaneous alternation, and significantly higher hippocampal MMP and ATP levels (p < 0.05). Meanwhile, the expression level of PPAR-γ protein in the ANXA1sp group was significantly increased compared with that in the other groups (p < 0.05). The expressions of apoptosis-related proteins (nuclear factor-kappa B [NF-κB], Bax, and Caspase-3) in the SAE and vehicle groups were significantly increased, with a noticeable decrease in Bcl-2 expression, compared with that noted in the control group. Moreover, the expressions of NF-κB, Bax, and Caspase-3 were significantly decreased in the ANXA1sp group, and the expression of Bcl-2 was markedly increased (p < 0.05). ANXA1sp can effectively reverse cognitive impairment in rats with SAE. The neuroprotective effect of ANXA1sp may be attributed to the activation of the PPAR-γ pathway, resulting in reduced neuroinflammatory response and inhibition of apoptosis.