The vertebrate brain actively regulates incoming sensory information, effectively filtering input and focusing attention toward environmental stimuli that are most relevant to the animal's behavioral context or physiological state. Such centrifugal modulation has been shown to play an important role in processing in the retina and cochlea, but has received relatively little attention in olfaction. The terminal nerve, a cranial nerve that extends underneath the lamina propria surrounding the olfactory epithelium, displays anatomical and neurochemical characteristics that suggest that it modulates activity in the olfactory epithelium. Using immunocytochemical techniques, we demonstrate that neuropeptide Y (NPY) is abundantly present in the terminal nerve in the axolotl (Ambystoma mexicanum), an aquatic salamander. Because NPY plays an important role in regulating appetite and hunger in many vertebrates, we investigated the possibility that NPY modulates activity in the olfactory epithelium in relation to the animal's hunger level. We therefore characterized the full-length NPY gene from axolotls to enable synthesis of authentic axolotl NPY for use in electrophysiological experiments. We find that axolotl NPY modulates olfactory epithelial responses evoked by L-glutamic acid, a food-related odorant, but only in hungry animals. Similarly, whole-cell patch-clamp recordings demonstrate that bath application of axolotl NPY enhances the magnitude of a tetrodotoxin-sensitive inward current, but only in hungry animals. These results suggest that expression or activity of NPY receptors in the olfactory epithelium may change with hunger level, and that terminal nerve-derived peptides modulate activity in the olfactory epithelium in response to an animal's changing behavioral and physiological circumstances.