We previously reported that inhibition of the brain enzyme N-acetylated alpha-linked acidic dipeptidase (NAALADase; glutamate carboxypeptidase II) robustly protects cortical neurons from ischemic injury. Since NAALADase hydrolyzes N-acetylaspartylglutamate (NAAG) to glutamate we hypothesized that inhibiting NAALADase would both decrease glutamate and increase NAAG. Increasing NAAG is potentially important because NAAG is a metabotropic glutamate receptor agonist and an N-methyl-D-aspartate (NMDA) partial antagonist, both of which have previously been shown to be neuroprotective. To understand the likely effects of endogenous NAAG in the central nervous system, we have now investigated the activity of NAAG in primary cortical cultures while manipulating NAALADase activity. Under hydrolyzing conditions, when NAALADase was active, NAAG had toxic effects that were blocked by NMDA and alpha-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid (AMPA)/kainate receptor antagonists and by NAALADase inhibition. NAAG's toxic effects were presumably due to the liberation of glutamate. Under nonhydrolyzing conditions, when NAALADase was inhibited, NAAG demonstrated neuroprotective effects against both NMDA toxicity and metabolic inhibition. In the case of NMDA-induced toxicity, NAAG provided neuroprotection through its partial antagonist activity at the NMDA receptor. In the case of metabolic inhibition, NAAG had an additional neuroprotective effect mediated through its agonist properties at the type II metabotropic glutamate receptor. These results indicate that NAAG might play an important role in the central nervous system, under certain pathological conditions, as a neurotoxin or as a neuroprotectant, depending on the activity of NAALADase.