Acetaminophen (paracetamol) is a popular domestic analgesic and antipyretic agent with a weak anti-inflammatory action and a low incidence of adverse effects as compared with aspirin and other non-steroidal anti-inflammatory drugs. Here we show that acetaminophen, following deacetylation to its primary amine, is conjugated with arachidonic acid in the brain and the spinal cord to form the potent TRPV1 agonist N-arachidonoylphenolamine (AM404). This conjugation is absent in mice lacking the enzyme fatty acid amide hydrolase. AM404 also inhibits purified cyclooxygenase (COX)-1 and COX-2 and prostaglandin synthesis in lipopolysaccharide-stimulated RAW264.7 macrophages. This novel metabolite of acetaminophen also acts on the endogenous cannabinoid system, which, together with TRPV1 and COX, is present in the pain and thermoregulatory pathways. These findings identify fatty acid conjugation as a novel pathway for drug metabolism and provide a molecular mechanism for the occurrence of the analgesic N-acylphenolamine AM404 in the nervous system following treatment with acetaminophen.