A sounding rocket carrying 88 kg of high explosives and plasma diagnostic instrumentation was launched from Churchill Research Range on April 6, 1980, over a premidnight auroral arc, as part of Project Waterhole, a joint NRC/LASL experiment. The object of the experiment was to produce an ionospheric hole, or plasma density depletion, at about 300-km altitude on field lines connected to an auroral arc. The plasma depletion is produced when the explosive by-products (mostly water) charge exchange with the ambient O+ ions to produce molecular ions (mostly H2O+) which then rapidly recombine with ambient electrons. It was speculated that the presence of the 'hole' would interfere with the field-aligned current systems associated with the arc and would in turn perturb the auroral source mechanism. The release occurred about 10 km poleward of the auroral arc field lines. As expected, a large ionospheric hole was detected by the rocket-borne plasma sensors. Within a few seconds following the release (1) the energetic electron precipitation observed in the hole dropped to background levels, (2) the luminosity of the auroral arc observed by a ground-based auroral scanning photometer decreased by a factor of 2, and (3) the ionospheric E region density below the hole decayed at a rate consistent with a sudden reduction in particle precipitation. The simultaneous onset of these gross changes in electron precipitation coincident with the release strongly suggests a cause and effect relationship. Relevant observations of the particle precipitation, electric field, and optical morphology of the auroral arc system in the experiment are presented and their interpretations discussed in terms of current theories of auroral field-aligned currents and auroral arc formation. Our observations suggest that the ionospheric plasma and the field-aligned current systems play a crucial role in the auroral acceleration process.