Sleep cycles consist of rapid alterations between arousal states, including transient perturbation of sleep rhythms, microarousals, and full-blown awake states. Here we demonstrate that the calretinin (CR)-containing neurons in the dorsal medial thalamus (DMT) constitute a key diencephalic node that mediates distinct levels of forebrain arousal. Cell-type-specific activation of DMT/CR+ cells elicited active locomotion lasting for minutes, stereotyped microarousals, or transient disruption of sleep rhythms, depending on the parameters of the stimulation. State transitions could be induced in both slow-wave and rapid eye-movement sleep. The DMT/CR+ cells displayed elevated activity before arousal, received selective subcortical inputs, and innervated several forebrain sites via highly branched axons. Together, these features enable DMT/CR+ cells to summate subcortical arousal information and effectively transfer it as a rapid, synchronous signal to several forebrain regions to modulate the level of arousal.