Oxytocin is released from supraoptic magnocellular neurones and is thought to act at presynaptic receptors to inhibit transmitter release. We now show that this effect is mediated by endocannabinoids, but that oxytocin nonetheless plays an important role in endocannabinoid signalling. WIN55,212-2, a cannabinoid receptor agonist, mimicked the action of oxytocin and occluded oxytocin-induced presynaptic inhibition. The cannabinoid action is at the presynaptic terminal as shown by alteration in paired pulse ratio, a reduction in miniature EPSC frequency and immunohistochemical localization of CB1 receptors on presynaptic terminals. AM251, a CB1 receptor antagonist, blocked both the WIN55,212-2 and the oxytocin-induced presynaptic inhibition of EPSCs. Depolarization of postsynaptic magnocellular neurones (which contain fatty acid amide hydrolase, a cannabinoid catabolic enzyme) caused a transient inhibition of EPSCs that could be blocked by both the AM251 and Manning compound, an oxytocin/vasopressin receptor antagonist. This indicates that somatodendritic peptide release and action on previously identified autoreceptors facilitates the release of endocannabinoids that act as mediators of presynaptic inhibition.