Complications during pregnancy and birth asphyxia lead to brain injury, with devastating consequences for the neonate. In this paper we present evidence that the steroid environment during pregnancy and at birth aids in protecting the fetus and neonate from asphyxia-induced injury. Earlier studies show that the placental progesterone production has a role in the synthesis and release of neuroactive steroids or their precursors into the fetal circulation. Placental precursor support leads to remarkably high concentrations of allopregnanolone in the fetal brain and to a dramatic decline with the loss of the placenta at birth. These elevated concentrations influence the distinct behavioral states displayed by the late gestation fetus and exert a suppressive effect that maintains sleep-like behavioral states that are present for much of fetal life. This suppression reduces CNS excitability and suppresses excitotoxicity. With the availability of adequate precursors, mechanisms within the fetal brain ultimately control neurosteroid levels. These mechanisms respond to episodes of acute hypoxia by increasing expression of 5alpha-reductase and P450scc enzymes and allopregnanolone synthesis in the brain. This allopregnanolone response, and potentially that of other neurosteroids including 5alpha-tetrahydrodeoxycorticosterone (TH-DOC), reduces hippocampal cell death following acute asphyxia and suggests that stimulation of neurosteroid production may protect the fetal brain. Importantly, inhibition of neurosteroid synthesis in the fetal brain increases the basal cell death suggesting a role in controlling developmental processes late in gestation. Synthesis of neurosteroid precursors in the fetal adrenal such as deoxycorticosterone (DOC), and their conversion to active neurosteroids in the fetal brain may also have a role in neuroprotection. This suggests that the adrenal glands provide precursor DOC for neurosteroid synthesis after birth and this may lead to a switch from allopregnanolone alone to neuroprotection mediated by allopregnanolone and TH-DOC.