Purine nucleotides are well established as extracellular signaling molecules. P2X7 receptors (P2X7Rs) are members of the family of ionotropic ATP-gated receptors. Their activity can be found in a limited number of cell types, but is readily detectable in cells of hemopoietic lineage including macrophages, microglia, and certain lymphocytes, and mediates the influx of Ca2+ and Na+ as well as the release of pro-inflammatory cytokines. Amongst P2X receptors, P2X7Rs behave as a bifunctional molecule. The binding of ATP induces within milliseconds the opening of a channel selective for small cations, and within seconds a larger pore opens which allows permeation by molecules with a mass of up to 900 Da. In humans at least, the P2RX7 gene is highly polymorphic, and genetic differences within P2X7R affect receptor pore formation and channel function. ATP can act as a neurotransmitter, while the presence of P2X7Rs on immune cells suggests that they also regulate immune function and inflammatory responses. In addition, activation of the P2X7R has dramatic cytotoxic properties. The role of extracellular ATP and purinoceptors in cytokine regulation and neurological disorders is, in fact, the focus of a rapidly expanding area of research. P2X7Rs may affect neuronal cell death by regulating the processing and release of interleukin-1β, a key mediator in neurodegeneration, chronic inflammation, and chronic pain. Activation of P2X7Rs provides an inflammatory stimulus, and P2X7R-deficient mice display a marked attenuation of inflammatory responses, including models of neuropathic and chronic inflammatory pain. Moreover, P2X7R activity, by regulating the release of pro-inflammatory cytokines, may be involved in the pathophysiology of neuropsychiatric disorders. The P2X7R may thus represent a critical communication link between the nervous and immune systems, while providing a target for therapeutic exploitation. In this review we discuss current biology and pharmacology of the P2X7R, as well as insights into the role for this receptor in neurological/psychiatric diseases.