Gonadal steroid hormones are neurotrophic and neuroprotective. These effects are modulated by local metabolism of the hormones within the brain. Such control is necessary to maintain normal function, as several signaling pathways that are activated by gonadal steroid hormones in the brain can also become dysregulated in disease. Metabolites of the gonadal steroid hormones—particularly 3α-hydroxy, 5α-reduced neurosteroids—are synthesized in the brain and can act through different mechanisms from their parent steroids. These metabolites may provide a mechanism for modulating the responses to their precursor hormones, thereby providing a regulatory influence on cellular responses. In addition, there is evidence that the 3α-hydroxy, 5α-reduced neurosteroids are neuroprotective in their own right, and therefore may contribute to the overall protection conferred by their precursors. In this review article, the rapidly growing body of evidence supporting a neuroprotective role for this class of neurosteroids will be considered, including a discussion of potential mechanisms that may be involved. In addition, we explore the hypothesis that differences between males and females in local neurosteroid production may contribute to sex differences in the development of neurodegenerative disease.