The development of neuropeptide Y-immunoreactive (NPY-IR) cell and fiber systems in the hamster diencephalon was studied. Eight perinatal groups of NPY-IR neurons develop into 12 distinct sets in nuclei of the adult diencephalon and mesencephalon. NPY-IR neurons of the thalamic precommissural nucleus, nucleus of the optic tract, and olivary pretectal nucleus are derived from the superior group. Those in the adult magnocellular nucleus of the posterior commissure and deep mesencephalic nucleus are from the dorsal group. An arcuate group contributes neurons to the arcuate nucleus and median eminence and a mammillary group transiently exists in the mammillary region. A medial group gives rise to two sets of neurons, one that migrates to the intergeniculate leaflet and another that develops in the medial nucleus reuniens. A very large ventral group provides NPY-IR neurons to the adult medial zona incerta and caudal reticular thalamus. Groups of NPY-IR neurons also appear in the bed nucleus of the stria terminalis and centromedian thalamic nucleus. Superior group neurons may undergo apoptosis. In several groups, neurons become fewer during development, and NPY-IR may disappear. NPY-IR neurons of several groups initially migrate away from the neuroepithelial zone with later emergence of a distinct, persistent set of NPY-IR neurons in the same neuroepithelial region. The data show that neuropeptide content can be used to identify particular sets of neurons early in development, thereby allowing migration patterns to be followed and principles of brain development to be elucidated.