Cannabinoid receptors are molecular targets for marijuana and hashish, the widespread drugs of abuse. These receptors are expressed in areas of the central nervous system that contribute in important ways to the control of memory, cognition, movement and pain perception. Indeed, such functions can be strongly influenced by cannabinoid drugs, with consequences that include euphoria, analgesia, sedation and memory impairment. Although the pharmacology of cannabinoid drugs is now beginning to be understood, we still lack essential information on the endogenous signalling system(s) by which cannabinoid receptors are normally engaged. An endogenous ligand for cannabinoid receptors, anandamide, has been described. Here we report that sn-2 arachidonylglycerol (2-AG), a cannabinoid ligand isolated from intestinal tissue, is present in brain in amounts 170 times greater than anandamide. 2-AG is produced in hippocampal slices by stimulation of the Schaffer collaterals, an excitatory fibre tract that projects from CA3 to CA1 neurons. Formation of 2-AG is calcium dependent and is mediated by the enzymes phospholipase C and diacylglycerol lipase. 2-AG activates neuronal cannabinoid receptors as a full agonist, and prevents the induction of long-term potentiation at CA3-CA1 synapses. Our results indicate that 2-AG is a second endogenous cannabinoid ligand in the central nervous system.