Glutamate-induced excitotoxicity has been implicated in the etiology of stroke, epilepsy, and neurodegenerative diseases. NMDA receptors (NMDARs) play a pivotal role in excitotoxic injury; however, clinical trials testing NMDAR antagonists as neuroprotectants have been discouraging. The development of novel neuroprotectant molecules is being vigorously pursued. Here, we report that downstream regulatory element antagonist modulator (DREAM) significantly inhibits surface expression of NMDARs and NMDAR-mediated current. Overexpression of DREAM showed neuroprotection against excitotoxic neuronal injury, whereas knockdown of DREAM enhanced NMDA-induced toxicity. DREAM could directly bind to the C0 domain of the NR1 subunit. Although DREAM contains multiple binding sites for the NR1 subunit, residues 21-40 of the N terminus are the main binding site for the NR1 subunit. Thus, 21-40 residues might relieve the autoinhibition conferred by residues 1-50 and derepress the DREAM core domain by a competitive mechanism. Intriguingly, the cell-permeable TAT-21-40 peptide, constructed according to the critical binding site of DREAM to the NR1 subunit, inhibits NMDAR-mediated currents in primary cultured hippocampal neurons and has a neuroprotective effect on in vitro neuronal excitotoxic injury and in vivo ischemic brain damage. Moreover, both pretreatment and posttreatment of TAT-21-40 is effective against excitotoxicity. In summary, this work reveals a novel, negative regulator of NMDARs and provides an attractive candidate for the treatment of excitotoxicity-related disease.