Chronic demyelination in the human CNS is characterized by an inhibitory microenvironment that impairs recruitment and differentiation of oligodendrocyte progenitor cells (OPCs) leading to failed remyelination and axonal atrophy. By network-based transcriptomics, we identified sulfatase 2 (Sulf2) mRNA in activated human primary OPCs. Sulf2, an extracellular endosulfatase, modulates the signaling microenvironment by editing the pattern of sulfation on heparan sulfate proteoglycans. We found that Sulf2 was increased in demyelinating lesions in multiple sclerosis and was actively secreted by human OPCs. In experimental demyelination, elevated OPC Sulf1/2 expression directly impaired progenitor recruitment and subsequent generation of oligodendrocytes thereby limiting remyelination. Sulf1/2 potentiates the inhibitory microenvironment by promoting BMP and WNT signaling in OPCs. Importantly, pharmacological sulfatase inhibition using PI-88 accelerated oligodendrocyte recruitment and remyelination by blocking OPC-expressed sulfatases. Our findings define an important inhibitory role of Sulf1/2 and highlight the potential for modulation of the heparanome in the treatment of chronic demyelinating disease.