Hypothyroidism in humans is characterized by severe neurological consequences that are often irreversible, highlighting the critical role of thyroid hormone (TH) in the brain. Despite this, not much is known about the signaling pathways that control TH action in the brain. What is known is that the prohormone thyroxine (T4) is converted to the active hormone triiodothyronine (T3) by type 2 deiodinase (D2) and that this occurs in astrocytes, while TH receptors and type 3 deiodinase (D3), which inactivates T3, are found in adjacent neurons. Here, we modeled TH action in the brain using an in vitro coculture system of D2-expressing H4 human glioma cells and D3-expressing SK-N-AS human neuroblastoma cells. We found that glial cell D2 activity resulted in increased T3 production, which acted in a paracrine fashion to induce T3-responsive genes, including ectonucleotide pyrophosphatase/phosphodiesterase 2 (ENPP2), in the cocultured neurons. D3 activity in the neurons modulated these effects. Furthermore, this paracrine pathway was regulated by signals such as hypoxia, hedgehog signaling, and LPS-induced inflammation, as evidenced both in the in vitro coculture system and in in vivo rat models of brain ischemia and mouse models of inflammation. This study therefore presents what we believe to be the first direct evidence for a paracrine loop linking glial D2 activity to TH receptors in neurons, thereby identifying deiodinases as potential control points for the regulation of TH signaling in the brain during health and disease.