The noradrenergic neurons of the locus coeruleus (LC) play an important role in modulating arousal and selective attention. A similar function has been attributed to the hypocretin neurons of the hypothalamus which maintain a strong synaptic projection to the LC. As the LC can be difficult to detect in the embryonic and neonatal mouse brain, we used a new transgenic mouse with strong GFP expression in the LC under the regulation of a mouse prion promoter. GFP colocalized with immunoreactive tyrosine hydroxylase in sections and dispersed cultures of the LC, allowing visualization and whole cell or single‐unit recording from the LC in early stages of cellular development. GFP expression in the LC had no apparent effect on cellular physiology, including resting membrane potential, input resistance, spike threshold, depolarization‐induced spike frequency increase, current‐voltage relations, or hypocretin responses. In slices of the mature mouse and rat LC, hypocretin‐1 and −2 increased spike frequency, with hypocretin‐1 being an order of magnitude more potent. In the postnatal day (P) 0‐2 developing mouse slice during a developmental period when spikes could be elicited in some cells, other developing LC neurons showed rhythmic, subthreshold oscillations (≈1 Hz) in membrane potential (2.9‐7.4 mV amplitude); others were arrhythmic. Hypocretin‐1 depolarized the membrane potential, resulting in the appearance of spikes in developing LC cells that showed no spikes under control conditions. In the presence of TTX and glutamate receptor antagonists, hypocretin‐1‐mediated inward currents were blocked by substitution of choline‐Cl for NaCl, suggesting an excitatory mechanism based on an inward cation current. Hypocretin‐1 initiated strong regular membrane voltage oscillations in arrhythmic immature neurons. Hypocretin increased the temporal synchrony of action potentials studied with dual‐cell recording in P1‐P5 mouse LC slices, consistent with the view that synchrony of LC output, associated with improved cognitive performance, may be increased by hypocretin. Together these data suggest that the hypothalamus, via hypocretin projections, may therefore be in a position to enhance arousal and modulate plasticity in higher brain centres through the developing LC.