Age-related cognitive deficits in hippocampus are correlated with neuroinflammatory changes, typified by increased pro-inflammatory cytokine production and microglial activation. We provide evidence that the neural cell adhesion molecule (NCAM)-derived mimetic peptide, FG loop (FGL), acts as a novel anti-inflammatory agent. Administration of FGL to aged rats attenuated the increased expression of markers of activated microglia, the increase in pro-inflammatory interleukin-1beta (IL-1beta) and the impairment in long-term potentiation (LTP). We report that the age-related increase in microglial activation was accompanied by decreased expression of neuronal CD200, and suggest that the proclivity of FGL to suppress microglial activation is due to its stimulatory effect on neuronal CD200. We demonstrate that FGL enhanced interleukin-4 (IL-4) release from glial cells and IL-4 in turn enhanced neuronal CD200 in vitro. We provide evidence that the increase in CD200 is reliant on IL-4-induced extracellular signal-regulated kinase (ERK) signal transduction. These findings provide the first evidence of a role for FGL as an anti-inflammatory agent and identify a mechanism by which FGL controls microglial activation.