Inflammatory responses are essential for immune protection but may also cause pathology and must be regulated. Both Th1 and Th17 cells are implicated in the pathogenesis of autoimmune inflammatory diseases, such as multiple sclerosis. We show in this study that IL-18-binding protein (IL-18bp), the endogenous inhibitor of the Th1-promoting cytokine IL-18, is upregulated by IFN-gamma in resident microglial cells in the CNS during multiple sclerosis-like disease in mice. Test of function by overexpression of IL-18bp in the CNS using a viral vector led to marked reduction in Th17 responses and robust inhibition of incidence, severity, and histopathology of disease, independently of IFN-gamma. The disease-limiting action of IL-18bp included suppression of APC-derived Th17-polarizing cytokines. IL-18bp thus acts as a sensor for IFN-gamma and can regulate both Th1 and Th17 responses in the CNS.