Chronic inflammation and oxidative stress have been implicated in the pathogenesis of neurodegenerative diseases. A growing body of research focuses on the role of microglia, the primary immune cells in the brain, in modulating brain inflammation and oxidative stress. One of the most abundant antioxidants in the brain, particularly in glia, is the dipeptide carnosine, beta-alanyl-L-histidine. Carnosine is believed to be involved in cellular defense such as free radical detoxification and inhibition of protein cross-linking. The more stable N-acetyl derivative of carnosine has also been identified in the brain. The aim of the present study was to examine the role of carnosine and N-acetyl carnosine in the regulation of lipopolysaccharide (LPS)-induced microglial inflammation and oxidative damage. In this study, BV2 microglial cells were stimulated with bacterial LPS, a potent inflammatory stimulus. The data shows that both carnosine and N-acetyl carnosine significantly attenuated the LPS-induced nitric oxide synthesis and the expression of inducible nitric oxide synthase by 60% and 70%, respectively. By competitive spectrophotometric measurement and electrospray mass spectrometry analysis, we demonstrated a direct interaction of N-acetyl carnosine with nitric oxide. LPS-induced TNFalpha secretion and carbonyl formation were also significantly attenuated by both compounds. N-acetyl carnosine was more potent than carnosine in inhibiting the release of the inflammatory and oxidative stress mediators. These observations suggest the presence of a novel regulatory pathway through which carnosine and N-acetyl carnosine inhibit the synthesis of microglial inflammatory and oxidative stress mediators, and thus may prove to play a role in brain inflammation.