Background: Allopregnanolone is a neurosteroid produced in the brain that can alter the excitability of the CNS. Neurosteroids have neuroprotective properties, and their elevation in response to stress may protect the newborn brain following infection or hypoxia. Infection, particularly of the respiratory tract, may lead to episodes of hypoxia. Infection and hypoxia have been identified as factors contributing to neonatal morbidity and mortality. Objectives: To determine the effect of acute episodes of hypoxia alone or in combination with lipopolysaccharide (LPS) exposure on plasma and brain allopregnanolone concentrations in lambs 10–21 days old. Also, to examine plasma levels of cortisol and the cytokines, tumour necrosis factor-α and interleutkin-6 after these challenges. Results: Allopregnanolone concentrations in the brain were markedly increased after hypoxia. Hypoxia following prior LPS treatment resulted in greater increases in brain allopregnanolone concentrations compared to either the LPS or hypoxia treatment alone. Importantly, brain regions unaffected by LPS or hypoxia alone (thalamus/hypothalamus, cerebellum) showed significant increases of allopregnanolone content following the combined LPS and hypoxia treatments. Plasma tumour necrosis factor-α and interleukin-6 concentrations were increased after LPS treatment with and without hypoxia, but not by hypoxia alone. In contrast, plasma cortisol concentrations were increased after both stressors. Conclusions: These results show that the brain of young lambs readily responds to physiological stress by increased production of allopregnanolone. This response may protect the developing brain from the cytotoxicity following hypoxic and infectious episodes.