Anandamide (N-arachidonoyl-ethanolamine) was recently identified as a brain arachidonate derivative that binds to and activates cannabinoid receptors, yet the mechanisms underlying formation, release and inactivation of this putative messenger molecule are still unclear. Here we report that anandamide is produced in and released from cultured brain neurons in a calcium ion-dependent manner when the neurons are stimulated with membrane-depolarizing agents. Anandamide formation occurs through phosphodiesterase-mediated cleavage of a novel phospholipid precursor, N-arachidonoyl-phosphatidylethanolamine. A similar mechanism also governs the formation of a family of anandamide congeners, whose possible roles in neuronal signalling remain unknown. Our results and those of others indicate therefore that multiple biochemical pathways may participate in anandamide formation in brain tissue. The life span of extracellular anandamide is limited by a rapid and selective process of cellular uptake, which is accompanied by hydrolytic degradation to ethanolamine and arachidonate. Our results thus strongly support the proposed role of anandamide as an endogenous neuronal messenger.