Capsaicin, an agonist of transient receptor potential vanilloid 1 (TRPV1) channels, is pro-nociceptive in the periphery but is anti-nociceptive when administered into the ventrolateral periaqueductal gray (vlPAG), a midbrain region for initiating descending pain inhibition. Here, we investigated how activation of TRPV1 channels in the vlPAG leads to anti-nociception. We examined synaptic transmission and neuronal activity using whole-cell recordings in vlPAG slices in vitro and hot-plate nociceptive responses in rats after drug microinjection into the vlPAG in vivo. Capsaicin (1-10 µM) depressed evoked GABAergic inhibitory postsynaptic currents (eIPSCs) in vlPAG slices presynaptically, while increasing miniature excitatory PSC frequency. Capsaicin-induced eIPSC depression was antagonized by cannabinoid CB₁ and metabotropic glutamate (mGlu₅) receptor antagonists, and prevented by inhibiting diacylglycerol lipase (DAGL), which converts DAG into 2-arachidonoylglycerol (2-AG), an endocannabinoid. Capsaicin induced membrane depolarization in 2/3 neurons recorded but, overall, increased neuronal firings by increasing evoked postsynaptic potentials. Intra-vlPAG capsaicin reduced hot-plate responses in rats, effects blocked by CB₁ and mGlu receptor antagonists. Effects of capsaicin were antagonized by SB 366791, a TRPV1 channel antagonist. Capsaicin activated TRPV1s on glutamatergic terminals to release glutamate which activated postsynaptic mGlu₅ receptors, yielding 2-AG from DAG by DAGL hydrolysis. 2-AG induces retrograde inhibition (disinhibition) of GABA release via presynaptic CB₁ receptors. This disinhibition in the vlPAG leads to anti-nociception by activating the descending pain inhibitory pathway. This is a novel TRPV1 channel-mediated anti-nociceptive mechanism in the brain and a new interaction between vanilloid and endocannabinoid systems.