The chemical compounds in Xanax suppress neurotransmitters in the brain, thereby reducing anxiety. Higher dosages of Xanax in the body induce a calming effect and trigger gamma-aminobutyric acid (GABA), the chemical compound responsible for suppressing excitement in the nervous system. It is a commonly prescribed drug to treat a variety of mental illnesses, including panic disorders and anxiety disorders. Other things Xanax helps with include irritability, insomnia, and muscle tension.