The hypothalamo-neurohypophyseal system (HNS) regulates homeostasis through the passage of neurohormones and blood-borne proteins via permeable blood capillaries that lack the blood-brain barrier (BBB). Why neurohypophyseal capillaries become permeable while the neighboring vasculature of the brain forms BBB remains unclear. We show that pituicytes, the resident astroglial cells of the neurohypophysis, express genes that are associated with BBB breakdown during neuroinflammation. Pituicyte-enriched factors provide a local microenvironment that instructs a permeable neurovascular conduit. Thus, genetic and pharmacological perturbations of Vegfa and Tgfβ3 affected HNS vascular morphogenesis and permeability and impaired the expression of the fenestral marker plvap. The anti-inflammatory agent dexamethasone decreased HNS permeability and downregulated the pituicyte-specific cyp26b gene, encoding a retinoic acid catabolic enzyme. Inhibition of Cyp26b activity led to upregulation of tight junction protein Claudin-5 and decreased permeability. We conclude that pituicyte-derived factors regulate the "decision" of endothelial cells to adopt a permeable endothelial fate instead of forming a BBB.