The neonatal period is critical for brain development and determinant for long-term brain trajectory. Yet, this time concurs with a sensitivity and risk for numerous brain injuries following perinatal complications such as preterm birth. Brain injury in premature infants leads to a complex amalgam of primary destructive diseases and secondary maturational and trophic disturbances and, as a consequence, to long-term neurocognitive and behavioral problems. Neuroinflammation is an important common factor in these complications, which contributes to the adverse effects on brain development. Mediating this inflammatory response forms a key therapeutic target in protecting the vulnerable developing brain when complications arise. The neuropeptide oxytocin (OT) plays an important role in the perinatal period, and its importance for lactation and social bonding in early life are well-recognized. Yet, novel functions of OT for the developing brain are increasingly emerging. In particular, OT seems able to modulate glial activity in neuroinflammatory states, but the exact mechanisms underlying this connection are largely unknown. The current review provides an overview of the oxytocinergic system and its early life development across rodent and human. Moreover, we cover the most up-to-date understanding of the role of OT in neonatal brain development and the potential neuroprotective effects it holds when adverse neural events arise in association with neuroinflammation. A detailed assessment of the underlying mechanisms between OT treatment and astrocyte and microglia reactivity is given, as well as a focus on the amygdala, a brain region of crucial importance for socio-emotional behavior, particularly in infants born preterm.