Major life stressors, especially those involving interpersonal stress and social rejection, are among the strongest proximal risk factors for depression. In this review, we propose a biologically plausible, multilevel theory that describes neural, physiologic, molecular, and genomic mechanisms that link experiences of social-environmental stress with internal biological processes that drive depression pathogenesis. Central to this social signal transduction theory of depression is the hypothesis that experiences of social threat and adversity up-regulate components of the immune system involved in inflammation. The key mediators of this response, called proinflammatory cytokines, can in turn elicit profound changes in behavior, which include the initiation of depressive symptoms such as sad mood, anhedonia, fatigue, psychomotor retardation, and social-behavioral withdrawal. This highly conserved biological response to adversity is critical for survival during times of actual physical threat or injury. However, this response can also be activated by modern-day social, symbolic, or imagined threats, leading to an increasingly proinflammatory phenotype that may be a key phenomenon driving depression pathogenesis and recurrence, as well as the overlap of depression with several somatic conditions including asthma, rheumatoid arthritis, chronic pain, metabolic syndrome, cardiovascular disease, obesity, and neurodegeneration. Insights from this theory may thus shed light on several important questions including how depression develops, why it frequently recurs, why it is strongly predicted by early life stress, and why it often co-occurs with symptoms of anxiety and with certain physical disease conditions. This work may also suggest new opportunities for preventing and treating depression by targeting inflammation.