VIP, and the structurally related neuropeptide PACAP, present in the microenvironment of lymphoid organs, modulate the function of inflammatory cells through specific receptors. VIP and PACAP inhibit the production of the pro-inflammatory agents and stimulate the production of anti-inflammatory cytokines in activated macrophages. The effect is mediated through specific receptors, and involves shedding of the CD14 LPS receptor and the transcriptional regulation of cytokine genes through effects on de novo expression or nuclear translocation of NFkB, CREB, c-Jun, and IRF-1. The in vivo administration of VIP/PACAP results in a similar pattern of cytokine modulation, which presumably mediates the protective effect of VIP/PACAP in a high-endotoxic murine model for septic shock. VIP/PACAP reduce the expression of the costimulatory B7.1/B7.2 molecules, and the subsequent stimulatory activity for T helper cells in stimulated macrophages. In contrast, in unstimulated macrophages, VIP/PACAP induce specific B7.2 expression and promote Th2 cell differentiation. We propose that VIP/PACAP act as endogenous factors that regulate immune homeostasis, and that the physiological consequences of the VIP/PACAP presence in the immune microenvironment depends on the timing of the neuropeptide release and the activation stage of the neighboring immune cells.