Normal waking is associated with neuronal activity in several chemically defined ascending arousal systems. These include monoaminergic neurons in the brainstem and posterior hypothalamus, cholinergic neurons in the brainstem and basal forebrain, and hypocretin (orexin) neurons in the lateral hypothalamus. Collectively, these systems impart tonic activation to their neuronal targets in the diencephalon and neocortex that is reflected in the low-voltage fast-frequency electroencephalogram patterns of wakefulness. Neuronal discharge in these arousal systems declines rapidly at sleep onset. Transitions from waking to sleep, therefore, involve coordinated inhibition of multiple arousal systems. An important source of sleep-related inhibition of arousal arises from neurons located in the preoptic hypothalamus. These preoptic neurons are strongly activated during sleep, exhibiting sleep/waking state-dependent discharge patterns that are the reciprocal of that observed in the arousal systems. The majority of preoptic sleep regulatory neurons synthesize the inhibitory neurotransmitter GABA. Anatomical and functional evidence supports the hypothesis that GABAergic neurons in the median preoptic nucleus (MnPN) and ventrolateral preoptic area (VLPO) exert inhibitory control over the monoaminergic systems and the hypocretin system during sleep. Recent findings indicate that MnPN and VLPO neurons integrate homeostatic aspects of sleep regulation and are important targets for endogenous sleep factors, such as adenosine and growth hormone releasing hormone.