Demyelination and axonal degeneration are determinants of progressive neurological disability in patients with multiple sclerosis (MS). Cells resident within the central nervous system (CNS) are active participants in development, progression and subsequent control of autoimmune disease; however, their individual contributions are not well understood. Astrocytes, the most abundant CNS cell type, are highly sensitive to environmental cues and are implicated in both detrimental and protective outcomes during autoimmune demyelination. Experimental autoimmune encephalomyelitis (EAE) was induced in transgenic mice expressing signaling defective dominant-negative interferon gamma (IFN-γ) receptors on astrocytes to determine the influence of inflammation on astrocyte activity. Inhibition of IFN-γ signaling to astrocytes did not influence disease incidence, onset, initial progression of symptoms, blood brain barrier (BBB) integrity or the composition of the acute CNS inflammatory response. Nevertheless, increased demyelination at peak acute disease in the absence of IFN-γ signaling to astrocytes correlated with sustained clinical symptoms. Following peak disease, diminished clinical remission, increased mortality and sustained astrocyte activation within the gray matter demonstrate a critical role of IFN-γ signaling to astrocytes in neuroprotection. Diminished disease remission was associated with escalating demyelination, axonal degeneration and sustained inflammation. The CNS infiltrating leukocyte composition was not altered; however, decreased IL-10 and IL-27 correlated with sustained disease. These data indicate that astrocytes play a critical role in limiting CNS autoimmune disease dependent upon a neuroprotective signaling pathway mediated by engagement of IFN-γ receptors.