It has been proposed that the activation status of antigen-presenting cells (APCs) plays a significant role in the development of autoimmune disease. Whether expression of costimulatory ligands on tissue-resident APCs controls organ-specific autoimmune responses has not been tested. We here report that transgenic mice constitutively expressing the costimulatory ligand B7.2/CD86 on microglia in the central nervous system (CNS) and on related cells in the proximal peripheral nervous tissue spontaneously develop autoimmune demyelinating disease. Disease-affected nervous tissue in transgenic mice showed infiltration characterized by a predominance of CD8+ memory-effector T cells, as well as CD4+ T cells. Transgenic animals lacking alphabeta TCR+ T cells were completely resistant to disease development. Transgenic T cells induced disease when adoptively transferred into T cell-deficient B7.2 transgenic recipients but not into non-transgenic recipients. These data provide evidence that B7/CD28 interactions within the nervous tissue are critical determinants of disease development. Our findings have important implications for understanding the etiology of nervous system autoimmune diseases such as multiple sclerosis (MS) and Guillain-Barré syndrome (GBS).