Abstract Multiple Sclerosis (MS) is a debilitating neurological disease characterized by inflammatory demyelination in the central nervous system (CNS), and tumor necrosis factor (TNF-α) has been implicated in its pathogenesis. TNF-α is toxic to the myelin forming oligodendrocytes and their connected myelin sheaths, and its expression is elevated in MS lesions. However, the precise mechanism for TNF-α-mediated toxicity to oligodendrocytes remains unknown. Moreover, the role of regulatory molecules, including SHP-1, in controlling both TNF-α signaling and susceptibility to TNF-α-mediated demyelinating diseases in the CNS is unclear. Here, we show that compared to normal littermate controls, oligodendrocytes of SHP-1-deficient mice (motheaten), which are highly susceptible to inflammatory demyelination, display a significant increase in inflammatory gene expression in response to TNF-α. Unexpectedly, the most highly induced of these inflammatory genes is arginase-1, an enzyme that converts arginine to L-ornithine with major effects on allergic-type immune responses. To elucidate the mechanism underlying this induction, we are determining how TNF-α induces transcriptional activation of the arginase-1 promoter in an SHP-1-dependent manner. Further, we are investigating if abnormal expression of arginase-1 in oligodendrocytes is responsible for the oligodendrocyte dysfunction and increased demyelination observed in SHP-1-deficient mice.