The phosphodiesterase inhibitor, ibudilast, has many effects on lymphocytes, endothelial cells, and glial cells. We examined the neuroprotective role of ibudilast in neuron and microglia co-cultures. Ibudilast significantly suppressed neuronal cell death induced by the activation of microglia with lipopolysaccharide (LPS) and interferon (IFN)-γ. To examine the mechanisms by which ibudilast exerts a neuroprotective role against the activation of microglia, we examined the production of inflammatory and anti-inflammatory mediators and trophic factors following ibudilast treatment. In a dose-dependent manner, ibudilast suppressed the production of nitric oxide (NO), reactive oxygen species, interleukin (IL)-1β, IL-6, and tumor necrosis factor (TNF)-α and enhanced the production of the inhibitory cytokine, IL-10, and additional neurotrophic factors, including nerve growth factor (NGF), glia-derived neurotrophic factor (GDNF), and neurotrophin (NT)-4 in activated microglia. Thus, ibudilast-mediated neuroprotection was primarily due to the inhibition of inflammatory mediators and the upregulation of neurotrophic factor. In the CA1 region of hippocampal slices, long-term potentiation (LTP) induced by high frequency stimulation (HFS) could be inhibited with LPS and interferon-γ stimulation. Ibudilast returned this LTP inhibition to the levels observed in controls. These results suggest that ibudilast may be a useful neuroprotective and anti-dementia agent counteracting neurotoxicity in activated microglia.