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The lateral hypothalamus (LH), together with multiple neuromodulatory systems of the brain, such as the dorsal raphé nucleus (DR), is implicated in arousal, yet interactions between these systems are just beginning to be explored. Using a combination of viral tracing, circuit mapping, electrophysiological recordings from identified neurons and combinatorial optogenetics in mice, we show that GABAergic neurons in the LH selectively inhibit GABAergic neurons in the DR resulting in increased firing of a substantial fraction of its neurons that ultimately promotes arousal. These DRGABA neurons are wake active and project to multiple brain areas involved in the control of arousal including the LH, where their specific activation potently influences local network activity leading to arousal from sleep. Our results show how mutual inhibitory projections between the LH and the DR promote wakefulness and suggest a complex arousal control by intimate interactions between long-range connections and local circuit dynamics.