The sleep disorder narcolepsy is now linked with a loss of neurons containing the neuropeptide hypocretin (also known as orexin). The hypocretin neurons are located exclusively in the lateral hypothalamus, a brain region that has been implicated in arousal based on observations made by von Economo during the viral encephalitic epidemic of 1916-1926. There are other neuronal phenotypes located in the lateral hypothalamus that are distinct and separate from the hypocretin neurons. Here the authors identify these neurons based on peptides and neurotransmitters that they express and review roles of these neurons in sleep. Given the heterogeneity of the neuronal phenotypes in the lateral hypothalamus, it is likely that hypocretin neurons, as well as other types of neurons in the lateral hypothalamus, influence sleep and provide state-dependent regulation of physiological functions.