Local production of neurosteroids such as progesterone and allopregnanolone confers neuroprotection in central nervous system (CNS) inflammatory diseases. The mitochondrial translocator protein (TSPO) performs a rate-limiting step in the conversion of cholesterol to pregnenolone and its steroid derivatives. Previous studies have shown that TSPO is upregulated in microglia and astroglia during neural inflammation, and radiolabelled TSPO ligands such as PK11195 have been used to image and localize injury in the CNS. Recent studies have shown that modulating TSPO activity with pharmacological ligands such as etifoxine can initiate the production of neurosteroids locally in the injured CNS. In this study, we examined the effects of etifoxine, a clinically available anxiolytic drug, in the development and progression of mouse experimental autoimmune encephalomyelitis (EAE), an experimental model for multiple sclerosis (MS). Our results showed that etifoxine attenuated EAE severity when administered before the development of clinical signs and also improved symptomatic recovery when administered at the peak of the disease. In both cases, recovery was correlated with diminished inflammatory pathology in the lumbar spinal cord. Modulation of TSPO activity by etifoxine led to less peripheral immune cell infiltration of the spinal cord, and increased oligodendroglial regeneration after inflammatory demyelination in EAE. Our results suggest that a TSPO ligand, e.g. etifoxine, could be a potential new therapeutic option for MS with benefits that could be comparable to the administration of systemic steroids but potentially avoiding the detrimental side effects of long-term direct use of steroids.