Neurons have been neglected as cells with a major immune-regulatory function since they do not express major histocompatibility complex class II. Recently, we have shown that neurons are highly immune-regulatory, playing a crucial role in governing T-cell response and central nervous system (CNS) inflammation. Neurons induce proliferation of activated CD4+ T-cells via B7-CD28 and TGF-ß1–TGF-ßreceptor signaling pathways, resulting in amplification of T-cell receptor signaling via phosphorylated ZAP-70, interleukin (IL)-2 and IL-9. Neuron–T-cell interaction results in conversion of encephalitogenic T-cells to CD25+ TGF-ß1+ CTLA-4+ FoxP3+ T regulatory (reg) cells which suppress encephalitogenic T-cells and inhibit experimental autoimmune encephalomyelitis (EAE). Suppression is dependent on cytotoxic T lymphocyte antigen (CTLA)-4 but not TGF-ß1. However, autocrine action of TGF-ß1 is important for proliferative arrest of Treg cells. Blocking B7 and TGF-ß pathways prevents CNS-specific generation of Treg cells. These findings demonstrate that generation of neuron-dependent Treg cells in the CNS is instrumental in regulating CNS inflammation.