The hypocretin/orexin arousal system plays a key role in maintaining an alert wake state. The hypocretin peptide is colocalized with an opioid peptide, dynorphin. As dynorphin may be coreleased with hypocretin, we asked what action simultaneous stimulation with the excitatory neuropeptide hypocretin and the inhibitory peptide dynorphin might exert on cells postsynaptic to hypocretin axons, including hypocretin neurons. Hypocretin neurons received direct synaptic contact from other hypocretin neurons but showed little direct response to hypocretin. Here, we show that mouse hypocretin neurons are acutely sensitive to dynorphin. Dynorphin inhibits the hypocretin system by direct postsynaptic actions (hyperpolarization, decreased spike frequency, increased GIRK (G-protein-gated inwardly rectifying K+ channel) current, and attenuated calcium current, and indirectly by reducing excitatory synaptic tone. Interestingly, a selective antagonist of kappa-opioid receptors enhanced activity of the hypocretin system, suggesting ongoing depression by endogenous hypothalamic opioids. Electrical stimulation of hypothalamic microslices that contained hypocretin cells and their axons evoked dynorphin release. Costimulation with dynorphin and hypocretin had three different effects on neurons postsynaptic to hypocretin axons: direct response to only one or the other of the two peptides [hypocretin cells respond to dynorphin, arcuate neuropeptide Y (NPY) cells respond to hypocretin], differential desensitization causing shift from inhibitory current to excitatory current with repeated coexposure (melanin-concentrating hormone neurons), synergistic direct excitation by hypocretin and presynaptic attenuation of inhibition by dynorphin (arcuate NPY neurons). These results suggest that hypocretin neurons may be able to exercise a high degree of modulatory control over postsynaptic targets using multiple neuropeptides with target-dependent actions.