Over the past 20 years it has become apparent that certain steroids, synthesised de novo in the brain, hence named neurosteroids, produce immediate changes (within seconds) in neuronal excitability, a time scale that precludes a genomic locus of action. Identified molecular targets underlying modulation of brain excitability include both the inhibitory GABA(A) and the excitatory NMDA receptor. Of particular interest is the interaction of certain neurosteroids with the GABA(A) receptor, the major inhibitory receptor in mammalian brain. During the last decade, compelling evidence has accrued to reveal that locally produced neurosteroids may selectively "fine tune" neuronal inhibition. A range of molecular mechanisms including the subunit composition of the receptor(s), phosphorylation and local steroid metabolism, underpin the region- and neuronal selectivity of action of neurosteroids at synaptic and extrasynaptic GABA(A) receptors. The relative contribution played by each of these mechanisms in a variety of physiological and pathophysiological scenarios is currently being scrutinised at a cellular and molecular level. However, it is not known how such mechanisms may act in concert to influence behavioural profiles in health and disease. An important question concerns the identification of the anatomical substrates mediating the repertoire of behaviours produced by neurosteroids. "Knock-in" mice expressing mutant GABA(A) subunits engineered to be insensitive to benzodiazepines or general anaesthetics have proved invaluable in evaluating the role of GABA(A) receptor subtypes in complex behaviours such as sedation, cognition and anxiety [Rudolph, U., Mohler, H., 2006. GABA-based therapeutic approaches: GABA(A) receptor subtype functions. Curr. Opin. Pharmacol. 6, 18-23]. However, the development of a similar approach for neurosteroids has been hampered by the limited knowledge that, until recently, has surrounded the identity of the amino acid residues contributing to the neurosteroid binding pocket. Here, we will review recent progress in identifying the neurosteroid binding site on the GABA(A) receptor, and discuss how these discoveries will impact on our understanding of the role of neurosteroids in health and disease.