The recently discovered Neuropeptide S (NPS) and its cognate receptor represent a highly interesting system of neuromodulation with unique physiological effects. On one hand, NPS increases wakefulness and arousal. On the other, NPS produces anxiolytic-like effects by acutely reducing fear responses as well as modulating long-term aspects of fear memory, such as attenuation of contextual fear or enhancement of fear extinction. The main sources of NPS in the brain are a few clusters of NPS-producing neurons in the brainstem. NPS binds to a G-protein-coupled receptor that is highly conserved among vertebrates and stimulates mobilization of intracellular Ca(2+) as well as activation of protein kinases. In synaptic circuits within the amygdala, which are important for processing of acute fear as well as formation and expression of fear memories, NPS causes increased release of the excitatory transmitter glutamate, especially in synaptic contacts to a subset of GABAergic interneurons. Polymorphisms in the human NPS receptor gene have been associated with altered sleep behavior and panic disorder. In conclusion, the NPS system displays a unique physiological profile with respect to the specificity and time course of its actions. These functions could provide interesting opportunities for both basic research and clinical applications.