There is by now substantial clinical evidence for an association between specific mood disorders and altered immune function. More recently, a number of hypotheses have been forwarded to explain how components of the innate immune system can regulate brain function at the cellular and systems levels and how these may underlie the pathology of disorders such as depression, PTSD and bipolar disorder. In this review we draw reference to biochemical, cellular and animal disease models, as well as clinical observations to elucidate the role of the innate immune system in psychiatric disorders. Proinflammatory cytokines, such as IL-1β IL-6 and TNFα, which feature prominently in the immune response to pathogen in the periphery, have unique and specific actions on neurons and circuits within the central nervous system. Effects of these signaling molecules on neurotransmission, memory, and glucocorticoid function, as well as animal behaviors such as social withdrawal and fear conditioning relevant to psychiatric disorders are elucidated. Finally, we highlight future directions for studies, including the use of peripheral biomarkers, relevant for developing new therapeutic approaches for treating psychiatric illnesses. This article is part of Special Issue entitled ‘neuroinflammation in neurodegeneration and neurodysfunction’.