Multiple sclerosis (MS) is an autoimmune disease associated with inflammatory demyelination in the central nervous system (CNS). Autologous hematopoietic cell transplantation (HCT) is under investigation as a promising therapy for treatment-refractory MS. Here we identify a reactive myeloid state in chronic experimental autoimmune encephalitis (EAE) mice and MS patients that is surprisingly associated with neuroprotection and immune suppression. HCT in EAE mice leads to an enhancement of this myeloid state, as well as clinical improvement, reduction of demyelinated lesions, suppression of cytotoxic T cells, and amelioration of reactive astrogliosis reflected in reduced expression of EAE-associated gene signatures in oligodendrocytes and astrocytes. Further enhancement of myeloid cell incorporation into the CNS following a modified HCT protocol results in an even more consistent therapeutic effect corroborated by additional amplification of HCT-induced transcriptional changes, underlining myeloid-derived beneficial effects in the chronic phase of EAE. Replacement or manipulation of CNS myeloid cells thus represents an intriguing therapeutic direction for inflammatory demyelinating disease.