Neuropeptide Y (NPY) has neuromodulatory actions on multiple brain functions including endocrine, behavioral, and circadian processes and has been implicated in the pathophysiology of both anxiety and depression. Behavioral studies suggest that NPY is a potent anxiolytic, whereas CRF is anxiogenic, thus it seems that a balance of these two peptides may exert important influences on behavioral state regulation. However, little is known about how the NPY/CRF balance affects general arousal, attention, and/or sleep states. The present study evaluated the effects of CRF alone, and co-administered with NPY, on spontaneous brain activity as well as on auditory processing using electrophysiological measures. Electroencephalographic (EEG) and event-related potentials (ERPs) were obtained in rats following intracerebroventricular administration of CRF (0.5 microgram) and CRF (0.5 microgram)/NPY (5.0 or 15 micrograms). Auditory processing, as assessed by ERPs, was affected most significantly in the frontal cortex where CRF produced increases in the N1 and P3 components of the ERP, and NPY/CRF co-administration produced significant decreases. These data are consistent with a role for CRF in hyperarousal, and further suggest that NPY may be capable of reversing such states. Administration of CRF also produced a significant increase in the time to sleep onset and a decrease in the amount of time spent in non-rapid eye movement (NREM) sleep as quantified by scoring the EEG paper records. Co-administration of NPY with CRF reversed the effects of CRF on sleep duration and sleep onset in a dose-dependent fashion. Spectral analysis revealed that CRF produced quantitative changes in the EEG that were similar to what has previously been reported. CRF-induced increases in fast frequency activity were found to be reversed by co-administration of NPY. Taken together these data suggest that "dysregulation" of sleep and arousal states in depression and anxiety may be consistent with an upset of the balance between hypothalamic neuropeptide systems.