Pituitary adenylate cyclase-activating peptide (PACAP), a cAMP-activating agent, is highly expressed in the hypothalamus during the period when many neuroendocrine cells become differentiated from the neural stem cells (NSCs). Activation of the cAMP system in rat hypothalamic NSCs differentiated these cells into beta-endorphin (BEP)-producing neurons in culture. When these in vitro differentiated neurons were transplanted into the paraventricular nucleus (PVN) of the hypothalamus of an adult rat, they integrated well with the surrounding cells and produced BEP and its precursor gene product, proopiomelanocortin (POMC). Animals with BEP cell transplants demonstrated remarkable protection against carcinogen induction of prostate cancer. Unlike carcinogen-treated animals with control cell transplants, rats with BEP cell transplants showed rare development of glandular hyperplasia, prostatic intraepithelial neoplasia (PIN), or well differentiated adenocarcinoma with invasion after N-methyl-N-nitrosourea (MNU) and testosterone treatments. Rats with the BEP neuron transplants showed increased natural killer (NK) cell cytolytic function in the spleens and peripheral blood mononuclear cells (PBMCs), elevated levels of antiinflammatory cytokine IFN-gamma, and decreased levels of inflammatory cytokine tumor necrosis factor-alpha (TNF-alpha) in plasma. These results identified a critical role for cAMP in the differentiation of BEP neurons and revealed a previously undescribed role of these neurons in combating the growth and progression of neoplastic conditions like prostate cancer, possibly by increasing the innate immune function and reducing the inflammatory milieu.