Even though xenon doesn't easily form "compounds" in the normal chemical sense, it does weakly interact with other molecules through van der Waals forces, which are strong enough to affect the functioning of various receptors in neurons.

https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6467505/

I'm not very knowledgeable on this, but my understanding is that xenon can dissolve in the lipids in the brain and influence reactions in that state. This paper [1] seems to show that xenon can displace glycene in the NMDA receptors. The receptor is a "door" and glycene is one of the "keys" to open. By binding or interacting with the glycene site on the receptor, xenon keeps glycene from reaching the receptor, inhibiting it.

[1] https://pubs.asahq.org/anesthesiology/article/112/3/614/1084...

I'm not an expert on the biochemistry, but Wikipedia has a summary of some of the known interactions at:

https://en.wikipedia.org/wiki/Xenon#Anesthesia

Reactions don't need to happen, the magnesium ion is a single atom that interacts with the NMDA receptor to block it at specific potentials. When the postsynaptic neuron gets enough input at a synapse, there is enough change in the charge inside the cell where it allows the Mg2+ ion to be displaced from the pore to allow cations to pass through

Our cells use single atoms, usually in the form of charged ions, on a regular basis and we would not survive without them

It will still react through (weaker) non covalent forces, like van der Waals force.