Reactive microglia in the CNS have been implicated in the pathogenesis of white matter disorders, such as periventricular leukomalacia and multiple sclerosis. However, the mechanism by which activated microglia kill oligodendrocytes (OLs) remains elusive. Here we show that lipopolysaccharide (LPS)-induced death of developing OLs is caused by microglia-derived peroxynitrite, the reaction product of nitric oxide (NO) and superoxide anion. Blocking peroxynitrite formation with nitric oxide synthase inhibitors, superoxide dismutase mimics, or a decomposition catalyst abrogated the cytotoxicity. Only microglia, but not OLs, expressed inducible NO synthase (iNOS) after LPS challenge; microglia from iNOS knockout mice were not cytotoxic upon activation. The molecular source for superoxide was identified as the superoxide-generating enzyme NADPH oxidase. The oxidase was activated upon LPS exposure, and its inhibition prevented microglial toxicity toward OLs. Furthermore, microglia isolated from mice deficient in the catalytic component of the oxidase, gp91^phox, failed to induce cell death. Our results reveal a role for NADPH oxidase in LPS-induced OL death and suggest that peroxynitrite produced by iNOS and NADPH oxidase in activated microglia may play an important role in the pathogenesis of white matter disorders.