Since the basic mechanisms behind the beneficial effects of IFN-β in multiple sclerosis (MS) patients are still obscure, here we have investigated the effects of IFN-β gene disruption on the commonly used animal model for MS, experimental autoimmune encephalomyelitis (EAE). We show that IFN-β knockout (KO) mice are more susceptible to EAE than their wild-type (wt) littermates; they develop more severe and chronic neurological symptoms with more extensive CNS inflammation and demyelination. However, there was no discrepancy observed between wt and KO mice regarding the capacity of T cells to proliferate or produce IFN-γ in response to recall Ag. Consequently, we addressed the effect of IFN-β on encephalitogenic T cell development and the disease initiation phase by passive transfer of autoreactive T cells from KO or wt littermates to both groups of mice. Interestingly, IFN-β KO mice acquired a higher incidence and augmented EAE regardless of the source of T cells. This shows that the anti-inflammatory effect of endogenous IFN-β is predominantly exerted on the effector phase of the disease. Histopathological investigations of CNS in the effector phase revealed an extensive microglia activation and TNF-α production in IFN-β KO mice; this was virtually absent in wt littermates. This coincided with an increase in effector functions of T cells in IFN-β KO mice, as measured by IFN-γ and IL-4 production. We suggest that lack of endogenous IFN-β in CNS leads to augmented microglia activation, resulting in a sustained inflammation, cytokine production, and tissue damage with consequent chronic neurological deficits.