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The discovery of cannabinoid receptors and subsequent identification of their endogenous ligands (endocannabinoids) in early 1990s have greatly accelerated research on cannabinoid actions in the brain. Then, the discovery in 2001 that endocannabinoids mediate retrograde synaptic signaling has opened up a new era for cannabinoid research and also established a new concept how diffusible messengers modulate synaptic efficacy and neural activity. The last 7 years have witnessed remarkable advances in our understanding of the endocannabinoid system. It is now well accepted that endocannabinoids are released from postsynaptic neurons, activate presynaptic cannabinoid CB(1) receptors, and cause transient and long-lasting reduction of neurotransmitter release. In this review, we aim to integrate our current understanding of functions of the endocannabinoid system, especially focusing on the control of synaptic transmission in the brain. We summarize recent electrophysiological studies carried out on synapses of various brain regions and discuss how synaptic transmission is regulated by endocannabinoid signaling. Then we refer to recent anatomical studies on subcellular distribution of the molecules involved in endocannabinoid signaling and discuss how these signaling molecules are arranged around synapses. In addition, we make a brief overview of studies on cannabinoid receptors and their intracellular signaling, biochemical studies on endocannabinoid metabolism, and behavioral studies on the roles of the endocannabinoid system in various aspects of neural functions.