Neuropeptide S (NPS) is a recently discovered bioactive peptide that has shed new light on the neurobiology of sleep/wakefulness regulation and anxiety-like behavior. NPS can potently promote arousal and suppress all stages of sleep. This effect might be modulated by NPS receptors expressed in thalamic centers that are relays for transmitting arousing stimuli originating from the brainstem to the cortex. The peptide precursor is expressed most prominently in a novel nucleus located directly adjacent to the noradrenergic locus coeruleus, a brain structure with well-defined functions in arousal, stress, and anxiety. NPS was also found to induce anxiolytic-like behavior in a battery of four different tests of innate responses to stress. This unique pharmacological profile of NPS offers significant potential for developing new drugs for the treatment of sleep and/or anxiety disorders.