The biosynthesis of neurosteroids proceeds through cholesterol side-chain cleavage, and gives rise to pregnenolone (P) and dehydroepiandrosterone (D). These steroids accumulate in the rat brain independently of the supply by peripheral endocrine glands. This led to the discovery of a steroid biosynthesis pathway in rat brain oligodendrocytes based on enzyme immunocytochemistry and conversion of radioactive precursors to C-21 steroids. Several biological functions have been proposed for P and D. They may serve as precursors of other steroids (such as progesterone and testosterone and their metabolites). They are implicated in the control of some behavioural activities. They have excitatory effects on neurons, and they modulate the function of GABAA-receptors. These observations may apply to all mammalian species including the human, and the physiological significance of neurosteroid synthesis needs further investigation. The relationship between steroids and cerebral function may be reconsidered in the light of a new fact: the existence of a biosynthetic pathway of these compounds from cholesterol, assured in the brain by the oligodendrocytes, glial cells which synthesize myelin.