Microglia are intrinsic mediators of the central nervous system (CNS) immune response induced by a variety of insults. Activated microglia express costimulatory molecules CD40 and B7 that are important equally for T-cell activation and further activation of microglia. In this study, we sought to investigate the regulation of costimulatory molecule expression on primary microglia and microglial cell line, BV-2, by pituitary adenylyl cyclase-activating polypeptide (PACAP) and vasoactive intestinal peptide (VIP), potent anti-inflammatory neuropeptides. The neuropeptides inhibited CD40 and B7-2 mRNA expression in activated microglia. PACAP decreased surface expression of CD40 and B7-2 on activated microglia. The inclusion of an anti-IL-10 antibody completely abrogated PACAP inhibition of lipopolysaccharide (LPS)-induced CD40 expression, suggesting that PACAP inhibition is at least in part mediated by IL-10. Indeed, PACAP enhanced LPS-induced IL-10 mRNA and protein levels in microglia. These data indicate that PACAP, through an increase in IL-10 protein, can down-regulate important costimulatory molecule expression on microglia, thereby possibly affecting CNS immunity.