Damage to the posterior hypothalamic area produces a syndrome of EEG synchrony and behavioral somnolence. Cells of a recently described projection system within the posterior lateral hypothalamic area (PLHa) are potential candidates for mediating this area's influences on EEG and behavioral arousal. We examined PLHa neuronal activity during sleep and wakefulness in freely moving cats, identifying projection neurons by antidromic activation from stimulation sites in the external capsule, anterior cingulate bundle, or mesencephalic reticular formation. Orthodromic response evoked from these sites were also investigated. Twenty-two cells were found to send axons outside the PLHa; 9 with ascending projections and 13 with descending projections. Projection cells were found to discharge phasically in relation to waking movements. Most seemed to be related to complex head movements, although specific movement correlates were difficult to ascertain. Discharge rates during periods of waking immobility were similar to those occurring during slow-wave sleep. Rates during phasic REM sleep were generally similar to peak waking rates. Cells with ascending and descending projections displayed similar discharge profiles, although the former had somewhat higher rates in all conditions. Seventy-four cells were orthodromically driven from external capsule or anterior cingulate bundle. Responses evoked from these two sites were similar; an initial brief period of excitation, followed by a sustained (mean greater than 100 msec) episode of discharge suppression. Twenty-four cells exhibited orthodromic excitation from the mesencephalic reticular formation, but the duration of the subsequent discharge suppression was comparatively brief (mean less than 30 msec). With few exceptions, the discharge correlates of orthodromically driven cells were identical to those described above for identified projection neurons. These results do not support a role for neurons within the PLHa in the control of tonic EEG arousal. They are consistent with a possible involvement in either motor function, or phasic movement-related aspects of EEG activation.