Brain inflammation is accompanied by transection of axons and death of neurons in the acute lesions of multiple sclerosis. We explored mechanisms of inflammatory damage to neurons in vitro using cocultures of rat embryonal cortical neurons with microglia activated by interferon-gamma (IFNγ) and lipopolysaccharide (LPS). Previously, we have demonstrated that microglia are highly toxic to neurons and that nitric oxide (NO) derived from inducible nitric oxide synthase (iNOS) is necessary and sufficient to mediate this toxicity. Here, we show that addition of dexamethasone (1 µM) to activated cocultures provides effective neuroprotection. We demonstrate that dexamethasone down-regulates NO production of primary microglia by ≈ 50% and reduces steady-state iNOS protein and mRNA expression by ≈ 70%. These changes were reversed by the glucocorticoid receptor blocker RU-486. Furthermore, we analysed the stability of iNOS protein and show that whilst inhibitors of the proteasome blocked iNOS degradation they did not reverse the dexamethasone effect. Our results indicate that the main mechanism of corticosteroid activity on iNOS is reduction in protein synthesis, not destabilization as previously suggested.