Hypoxia is one of the important physiological stimuli that are often associated with a variety of pathological states such as ischemia, respiratory diseases, and tumorigenesis. In the central nervous system, hypoxia that is accompanied by cerebral ischemia not only causes neuronal cell injury, but may also induce pathological microglial activation. We have previously shown that hypoxia induces inflammatory activation of cultured microglia and their inducible nitric oxide synthase induction via p38 mitogen-activated protein kinase (MAPK) pathway, and a neuropeptide PACAP selectively inhibits microglial signal transduction. Based on these findings, we hypothesized that the neuropeptide may inhibit the hypoxic activation of microglia, and this may provide a neuroprotection against inflammation-induced neuronal injury. When this possibility was tested using cultured microglia and PC12 cells, we found that PACAP attenuates inflammatory activation of microglia under hypoxic condition, and protects cocultured PC12 cells from microglial neurotoxicity. In addition, the neuropeptide reduced the hypoxia-induced activation of p38 MAPK, indicating that the p38 MAPK is a molecular target of the PACAP action in microglia. The neuroprotective effects of PACAP in animal models of cerebral hypoxia/ischemia may be partly due to its direct actions on brain microglia and neurotoxic inflammation.