Objective: Intracerebroventricular or intravenous (IV) injection of neural precursor cells (NPCs) attenuates experimental autoimmune encephalomyelitis (EAE), the animal model of multiple sclerosis. Although stem cell therapy was introduced initially for cell replacement, we examine here whether NPCs possess immunomodulatory effects. Methods: We examined the effects of systemic administration of NPCs on central nervous system (CNS) inflammation in EAE and the interactions between NPCs and T cells in vitro and in vivo. Results: IV NPC therapy decreased significantly CNS inflammation and tissue injury and attenuated the clinical severity of EAE. IV-injected NPCs could not be found in the CNS but were detected in lymphoid organs. Coculture experiments showed that NPCs inhibited the activation and proliferation of lymph node-derived T cells in response to CNS-derived antigens and to nonspecific polyclonal stimuli. The relevance of NPC/lymph node cell interactions in vivo was further demonstrated when lymph node cells obtained from IV NPC-treated mice exhibited poor encephalitogenicity on transfer to naive mice and caused a markedly milder EAE compared with those obtained from nontreated mice. Interpretation: IV administration of neural precursors inhibits EAE by a peripheral immunosuppressive effect. Our findings suggest a profound bystander inhibitory effect of NPCs on T-cell activation and proliferation in the lymph nodes, leading to amelioration of EAE.