Brain transplantation of neural precursor cells (NPCs) has been proposed to enhance CNS regeneration. As the pathogenesis of most acute CNS diseases involves an inflammatory component, we studied whether NPC transplantation affects brain inflammation. Newborn rat multipotential NPCs were transplanted intraventriculary into acute experimental allergic encephalomyelitis (EAE) rats, a model for disseminated brain inflammation. Cells migrated into inflamed white matter and differentiated into glial cells. NPC transplantation attenuated the clinical severity of EAE and the brain inflammation, indicated by reduction in perivascular infiltrates and decreased expression of ICAM-1 and LFA-1. NPCs inhibited basal proliferation and proliferative responses to Concavalin-A and to MOG peptide of EAE rat-derived lymphocytes in vitro. Purified astrocytes inhibited lymphocyte proliferation in vitro, but did not migrate into EAE brains in vivo, and did not reduce EAE severity or brain inflammation. Thus, transplanted NPCs attenuate acute EAE via an anti-inflammatory mechanism which depends on cell ability to migrate into inflamed brain tissue.