Neuropathology in multiple sclerosis is closely linked to presence of macrophages in the CNS. Both M1 (inflammatory) and M2 (alternatively activated, noninflammatory) macrophages are found in the inflamed CNS and thought to differentiate from infiltrating monocytes. It is unclear whether the balance of M1 and M2 macrophages can be altered and whether this affects disease outcome. We show in this article that Ly6C hi inflammatory monocytes are the early and dominant infiltrating cells in the CNS during experimental autoimmune encephalomyelitis, a model for the acute phase of multiple sclerosis. Activation of invariant NKT (iNKT) cells reduced the frequency of Ly6C hi monocytes and increased the proportion of M2 macrophages in the CNS with associated improvement in neurologic impairment. In contrast, iNKT-deficient mice showed higher numbers of Ly6C hi monocytes, reduced M2, and much more severe disease. Adoptive transfer of M2-enriched cells to iNKT-deficient mice markedly improved neurologic impairment. In vitro and in vivo experiments showed that iNKT cells promote differentiation of monocytes to M2 macrophages in an IL-4 and CD1d-dependent process. These findings indicate that infiltrating Ly6C hi inflammatory monocytes are early players in acute neuroinflammation and that their frequency and differentiation can be influenced by activation of iNKT cells with resultant improvement in disease outcome.