Research of cannabinoid actions was boosted in the 1990s by remarkable discoveries including identification of endogenous compounds with cannabimimetic activity (endocannabinoids) and the cloning of their molecular targets, the CB1 and CB2 receptors. Although the existence of an endogenous cannabinoid signaling system has been established for a decade, its physiological roles have just begun to unfold. In addition, the behavioral effects of exogenous cannabinoids such as delta-9-tetrahydrocannabinol, the major active compound of hashish and marijuana, await explanation at the cellular and network levels. Recent physiological, pharmacological, and high-resolution anatomical studies provided evidence that the major physiological effect of cannabinoids is the regulation of neurotransmitter release via activation of presynaptic CB1 receptors located on distinct types of axon terminals throughout the brain. Subsequent discoveries shed light on the functional consequences of this localization by demonstrating the involvement of endocannabinoids in retrograde signaling at GABAergic and glutamatergic synapses. In this review, we aim to synthesize recent progress in our understanding of the physiological roles of endocannabinoids in the brain. First, the synthetic pathways of endocannabinoids are discussed, along with the putative mechanisms of their release, uptake, and degradation. The fine-grain anatomical distribution of the neuronal cannabinoid receptor CB1 is described in most brain areas, emphasizing its general presynaptic localization and role in controlling neurotransmitter release. Finally, the possible functions of endocannabinoids as retrograde synaptic signal molecules are discussed in relation to synaptic plasticity and network activity patterns.