Many biological effects of melatonin are produced through activation of melatonin receptors, while others are due to its role as a pervasive and powerful antioxidant, with a particular role in the protection of nuclear and mitochondrial DNA.

In mammals, melatonin is secreted into the blood by the pineal gland in the brain. Known as the "hormone of darkness", it is secreted in darkness in both day-active (diurnal) and night-active (nocturnal) animals.

It may also be produced by a variety of peripheral cells such as bone marrow cells, lymphocytes and epithelial cells. Usually, the melatonin concentration in these cells is much higher than that found in the blood but it does not seem to be regulated by the photoperiod.

Melatonin-rich plant feed, such as rice, ingested by chicks has been shown to reach and bind to melatonin receptors in their brains. No food has been found to elevate plasma melatonin levels in humans.

Products containing melatonin have been available over-the-counter as a dietary supplement in the United States since before 1994. In many other countries, sale of the hormone remains illegal or requires a prescription, and the U.S. Postal Service lists melatonin among items prohibited by Germany.

Melatonin is related to the mechanism by which some amphibians and reptiles change the color of their skin and, indeed, it was in this connection the substance first was discovered. As early as 1917, McCord and Allen discovered (J Exptl Zool, 1917) that extract of the pineal glands of cows lightened frog skin. Dermatology professor Aaron B. Lerner and colleagues at Yale University, in the hope that a substance from the pineal might be useful in treating skin diseases, isolated and named the hormone melatonin in 1958. In the mid-70s Lynch et al. demonstrated that the production of melatonin exhibits a circadian rhythm in human pineal glands. The discovery that melatonin is an antioxidant was made in 1993.

Melatonin in plants has multiple roles including regulation of the photoperiod, in plant defense responses, and as a scavenger of reactive oxygen species.

Many animals use the variation in duration of melatonin production each day as a seasonal clock. In animals including humans the profile of melatonin synthesis and secretion is affected by the variable duration of night in summer as compared to winter. The change in duration of secretion thus serves as a biological signal for the organisation of daylength-dependent (photoperiodic) seasonal functions such as reproduction, behaviour, coat growth and camouflage colouring in seasonal animals. In seasonal breeders which do not have long gestation periods and which mate during longer daylight hours, the melatonin signal controls the seasonal variation in their sexual physiology, and similar physiological effects can be induced by exogenous melatonin in animals including mynah birds and hamsters.

Melatonin produced in the pineal gland, which is outside of the blood-brain barrier, acts as an endocrine hormone since it is released into the blood. By contrast, melatonin produced by the retina and the gastrointestinal (GI) tract acts as a paracrine hormone.[citation needed]

Melatonin can suppress libido by inhibiting secretion of luteinizing hormone (LH) and follicle stimulating hormone (FSH) from the anterior pituitary gland, especially in mammals that have a breeding season when daylight hours are long. The reproduction of long-day breeders is repressed by melatonin and the reproduction of short-day breeders is stimulated by melatonin. During the night, melatonin regulates leptin, lowering the levels; see leptin.