Neurosteroids such as allopregnanolone are potent agonists at the GABAA receptor and suppress the fetal CNS activity. These steroids are synthesized in the fetal brain either from cholesterol or from circulating precursors derived from the placenta. The concentrations of allopregnanolone are remarkably high in the fetal brain and rise further in response to acute hypoxic stress, induced by constriction of the umbilical cord. This response may result from the increased 5α-reductase and cytochrome P-450SCC expression in the brain. These observations suggest that the rise in neurosteroid concentrations in response to acute hypoxia may represent an endogenous protective mechanism that reduces excitotoxicity following hypoxic stress in the developing brain. In contrast to acute stress, chronic hypoxemia induces neurosteroidogenic enzyme expression without an increase in neurosteroid concentrations and, therefore, may pose a greater risk to the fetus. At birth, the allopregnanolone concentrations in the brain fall markedly, probably due to the loss of placental precursors; however, stressors, including hypoxia and endotoxin-induced inflammation, raise allopregnanolone concentrations in the newborn brain. This may protect the newborn brain from hypoxia-induced damage. However, the rise in allopregnanolone concentrations was also associated with increased sleep. This rise in sedative steroid levels may depress arousal and contribute to the risk of sudden infant death syndrome. Our recent findings indicate that acute hypoxic stress in pregnancy initiates a neurosteroid response that may protect the fetal brain from hypoxia-induced cell death, whereas the decline in allopregnanolone levels after birth may result in greater vulnerability to brain injury in neonates.