Compelling evidence links the recently discovered hypothalamic peptides Hypocretin/Orexin (Hcrt/Orx) to rapid eye movement sleep (REM) control and the sleep disorder narcolepsy, yet how they influence sleep-related systems is not well understood. We investigated the action of Hcrt/Orx on mesopontine cholinergic (MPCh) neurons of the laterodorsal tegmental nucleus (LDT), a target group whose function is altered in canine narcolepsy and appears pivotal for normal REM and wakefulness. Extracellular recordings from mouse brainstem slices revealed that Hcrt/Orx evoked prolonged firing of LDT neurons. Whole-cell recordings revealed that Hcrt/Orx had actions on both presynaptic neurons and at postsynaptic sites. Hcrt/Orx produced an increase in frequency and amplitude of spontaneous EPSCs without equivalent effect on IPSCs, by triggering action potentials and enhancing spike-evoked synaptic transmission in glutamatergic afferents. Postsynaptically, Hcrt/Orx produced an inward current and an increase in membrane current noise, which were accompanied by a conductance increase. These persisted in TTX, ionotropic glutamate receptor antagonists, and low extracellular calcium. Both presynaptic and postsynaptic actions were specific because they were not mimicked by an Hcrt/Orx fragment, and both actions were observed for cholinergic and noncholinergic LDT neurons. Finally, extracellular recordings during postsynaptic potential blockade demonstrated that postsynaptic actions of Hcrt/Orx alone could evoke prolonged firing. In the context of other recent work, our findings suggest that Hcrt/Orx neurons may coordinate the activity of the entire reticular activating system during waking. Moreover, these findings address specific hypotheses regarding the cellular mechanisms underlying REM disregulation in narcolepsy.