Experimental autoimmune encephalomyelitis (EAE) is a T cell–mediated autoimmune disease of the central nervous system induced by antigen-specific effector Th17 and Th1 cells. We show that a key chemokine, CXCL12 (stromal cell–derived factor 1α), redirects the polarization of effector Th1 cells into CD4⁺CD25⁻Foxp3⁻interleukin (IL) 10^high antigen-specific regulatory T cells in a CXCR4-dependent manner, and by doing so acts as a regulatory mediator restraining the autoimmune inflammatory process. In an attempt to explore the therapeutic implication of these findings, we have generated a CXCL12-immunoglobulin (Ig) fusion protein that, when administered during ongoing EAE, rapidly suppresses the disease in wild-type but not IL-10–deficient mice. Anti–IL-10 neutralizing antibodies could reverse this suppression. The beneficial effect included selection of antigen-specific T cells that were CD4⁺CD25⁻Foxp3⁻IL-10^high, which could adoptively transfer disease resistance, and suppression of Th17 selection. However, in vitro functional analysis of these cells suggested that, even though CXCL12-Ig–induced tolerance is IL-10 dependent, IL-10–independent mechanisms may also contribute to their regulatory function. Collectively, our results not only demonstrate, for the first time, that a chemokine functions as a regulatory mediator, but also suggest a novel way for treating multiple sclerosis and possibly other inflammatory autoimmune diseases.