In the CNS, steroid hormones play a major role in the maintenance of brain homeostasis and it's response to injury. Since activated microglia are the pivotal immune cell involved in neurodegeneration, we investigated the possibility that microglia provide a discrete source for the metabolism of active steroid hormones. Using RT-PCR, our results showed that mouse microglia expressed mRNA for 17beta-hydroxysteroid dehydrogenase type 1 and steroid 5alpha-reductase type 1, which are involved in the metabolism of androgens and estrogens. Microglia also expressed the peripheral benzodiazepine receptor and steroid acute regulatory protein; however, the enzymes required for de novo formation of progesterone and DHEA from cholesterol were not expressed. To test the function of these enzymes, primary microglia cultures were incubated with steroid precursors, DHEA and AD. Microglia preferentially produced delta-5 androgens (Adiol) from DHEA and 5alpha-reduced androgens from AD. Adiol behaved as an effective estrogen receptor agonist in neuronal cells. Activation of microglia with pro-inflammatory factors, LPS and INFgamma did not affect the enzymatic properties of these proteins. However, PBR ligands reduced TNFalpha production signifying an immunomodulatory role for PBR. Collectively, our results suggest that microglia utilize steroid-converting enzymes and related proteins to influence inflammation and neurodegeneration within microenvironments of the brain.