Systemic infection or inflammation causes a decrease in intestinal iron absorption and impairs the release of recycled iron from macrophages. Decreased availability of iron may deny this essential element to invading pathogens and may inhibit their multiplication and other metabolic processes but also results in anemia of chronic disease. This article reviews recent discoveries that shed light on the regulation of iron metabolism during infection and iron overload, and point to the central role of a newly discovered peptide, hepcidin. Evidence to date indicates that hepcidin is a negative regulator of intestinal iron absorption, placental iron transport, and the release of iron from macrophages that recycle iron from senescent red cells. It may also be the central mediator of iron sequestration during infections and inflammatory states and the mediator of anemia of chronic disease. Rapid progress in this area is a good example of the beneficial effects of improvements in peptide analysis and chemistry, advances in genomics, and the increasing use of transgenic mice to determine the function of newly discovered genes and proteins.