Using forward and reverse genetics, the genes (hypocretin/orexin ligand and its receptor) involved in the pathogenesis of the sleep disorder, narcolepsy, in animals, have been identified. Mutations in hypocretin related-genes are extremely rare in humans, but hypocretin-ligand deficiency is found in most narcolepsy-cataplexy cases. Hypocretin deficiency in humans can be clinically detected by CSF hypocretin-1 measures, and undetectably low CSF hypocretin-1 is now included in the revised international diagnostic criteria of narcolepsy. Since hypocretin-ligand deficiency is the major pathophysiology in human narcolepsy, hypocretin replacements (using hypocretin agonists or gene therapy) are promising future therapeutic options. New insights into the roles of hypocretin system on sleep physiology have also rapidly increased. Hypocretins are involved in various fundamental hypothalamic functions such as feeding, energy homeostasis and neuroendocrine regulation. Hypocretin neurons project to most ascending arousal systems (including monoaminergic and cholinergic systems), and generally exhibit excitatory inputs. Together with the recent finding of the sleep promoting system in the hypothalamus (especially in the GABA/galanin ventrolateral preoptic area which exhibits inhibitory inputs to these ascending systems), the hypothalamus is now recognized as the most important brain site for the sleep switch, and other peptidergic systems may also participate in this regulation. Meanwhile, narcolepsy now appears to be a more complex condition than previously thought. The pathophysiology of the disease is involved in the abnormalities of sleep and various hypothalamic functions due to hypocretin deficiency, such as the changes in energy homeostasis, stress reactions and rewarding. Narcolepsy is therefore, an important model to study the link between sleep regulation and other fundamental hypothalamic functions.