Neural (stem) cell transplantation has been proposed as a means of cell replacement therapy. Multipotential neural precursor cells (NPCs) that expand in floating spheres, and are (partially) committed to a glial fate, showed excellent remyelinating properties in a focal, chemically induced demyelinated lesion in the rat spinal cord. When transplanted into the CNS of rodents with acute and chronic EAE the NPCs were attracted by the inflammatory process to migrate exclusively into inflamed white matter but not into adjacent gray matter. Following magnetic labeling, mouse NPCs and human ESC-derived neural precursors' migration was detected by high-resolution magnetic resonance images. Intraventricular transplantation of neural spheres attenuated brain inflammation in acute and chronic EAE, reduced the clinical severity of disease, and reduced demyelination and axonal pathology. Intravenous (IV) NPC injection also inhibited EAE and reduced CNS inflammation and tissue injury. However, NPCs did not enter the CNS but were transiently found in lymph nodes and spleen, where they inhibited the activation and proliferation of T cells and markedly reduced their encephalitogenicity. Thus, IV administration of neural precursors inhibits EAE by a peripheral immunosuppression, involving a profound bystander inhibitory effect of NPCs on T cell activation and proliferation in lymph nodes. In conclusion, neural precursor cells exert an immunomodulatory effect that inhibits CNS inflammation. Cell therapy in MS should be optimized to utilize both regenerative and immunologic properties of the cells.