Certain metabolites of progesterone and deoxycorticosterone are established as potent and selective positive allosteric modulators of the gamma-aminobutyric acid type A (GABA(A)) receptor. Upon administration these steroids exhibit clear behavioural effects that include anxiolysis, sedation and analgesia, they are anticonvulsant and at high doses induce a state of general anaesthesia, a profile consistent with an action to enhance neuronal inhibition. Physiologically, peripherally synthesised pregnane steroids derived from endocrine glands such as the adrenals and ovaries function as hormones by crossing the blood brain barrier to influence neuronal signalling. However, the demonstration that certain neurons and glial cells within the central nervous system (CNS) can synthesize these steroids either de novo, or from peripherally derived progesterone, has led to the proposal that these steroids (neurosteroids) can additionally function in a paracrine manner, to locally influence GABAergic transmission. Steroid levels are known to change dynamically, for example in stress and during pregnancy. Given that GABA(A) receptors are ubiquitously expressed throughout the central nervous system, such changes in steroid levels would be predicted to cause a global enhancement of inhibitory neurotransmission throughout the brain, a scenario that would seem incompatible with a physiological role as a selective neuromodulator. Here, we will review emerging evidence that the GABA-modulatory actions of the pregnane steroids are highly selective, with their actions being brain region and indeed neuron dependent. Furthermore, the sensitivity of GABA(A) receptors is not static but can dynamically change. The molecular mechanisms underpinning this neuronal specificity will be discussed with particular emphasis being given to the role of GABA(A) receptor isoforms, protein phosphorylation and local steroid metabolism and synthesis.