The lateral periaqueductal gray (LPAG) is essential for coordinating active and passive defensive behaviors which rely on heightened arousal, but its impact on sleep–wake regulation remains unknown. Here, by using targeted recombination in active populations transgenic mouse tool along with neuroanatomical approaches, we first show that two different populations of glutamatergic neurons are activated during wakefulness and rapid eye movement (REM) sleep in the LPAG. Fiber photometry showed that most LPAG vesicular glutamate transporter 2 (Vglut2) neurons are preferentially active during wakefulness. Chemogenetic and optogenetic activation of LPAGVglut2 neurons strongly enhanced arousal associated with immobility. The wakefulness- and immobility-promoting effects of LPAGVglut2 neurons are mediated by their projections to the locus coeruleus and ventral gigantocellular reticular nucleus, as supported by optogenetic manipulations. In contrast, chemogenetic inhibition of LPAGVglut2 neurons reduced REM sleep and increased non-REM sleep. Most LPAG neurons activated during REM sleep hypersomnia and showed descending projections to the sublaterodorsal tegmental nucleus. These findings revealed that two different LPAGVglut2 populations of neurons and circuits induce wakefulness associated with immobility and REM sleep.