Transplantation of major histocompatibility complex-mismatched mouse neural precursor cells (NPCs) into mice persistently infected with the neurotropic JHM strain of mouse hepatitis virus (JHMV) results in rapid rejection that is mediated, in part, by T cells. However, the contribution of the innate immune response to allograft rejection in a model of viral-induced neurological disease has not been well defined. Herein, we demonstrate that the natural killer (NK) cell-expressing-activating receptor NKG2D participates in transplanted allogeneic NPC rejection in mice persistently infected with JHMV. Cultured NPCs derived from C57BL/6 (H-2(b) ) mice express the NKG2D ligand retinoic acid early precursor transcript (RAE)-1 but expression was dramatically reduced upon differentiation into either glia or neurons. RAE-1(+) NPCs were susceptible to NK cell-mediated killing whereas RAE-1(-) cells were resistant to lysis. Transplantation of C57BL/6-derived NPCs into JHMV-infected BALB/c (H-2(d) ) mice resulted in infiltration of NKG2D(+) CD49b(+) NK cells and treatment with blocking antibody specific for NKG2D increased survival of allogeneic NPCs. Furthermore, transplantation of differentiated RAE-1(-) allogeneic NPCs into JHMV-infected BALB/c mice resulted in enhanced survival, highlighting a role for the NKG2D/RAE-1 signaling axis in allograft rejection. We also demonstrate that transplantation of allogeneic NPCs into JHMV-infected mice resulted in infection of the transplanted cells suggesting that these cells may be targets for infection. Viral infection of cultured cells increased RAE-1 expression, resulting in enhanced NK cell-mediated killing through NKG2D recognition. Collectively, these results show that in a viral-induced demyelination model, NK cells contribute to rejection of allogeneic NPCs through an NKG2D signaling pathway.