Microglial cells are monocytic lineage cells that reside in the CNS and have the capacity to become activated during various pathological conditions. Although it was demonstrated that activation of microglial cells could be achieved in vitro by the engagement of CD40-CD40L interactions in combination with proinflammatory cytokines, the exact factors that mediate activation of microglial cells in vivo during CNS autoimmunity are ill-defined. To investigate the role of CD40 in microglial cell activation during experimental autoimmune encephalomyelitis (EAE), we used bone marrow chimera mice that allowed us to distinguish microglial cells from peripheral macrophages and render microglial cells deficient in CD40. We found that the first step of microglial cell activation was CD40-independent and occurred during EAE onset. The first step of activation consisted of microglial cell proliferation and up-regulation of the activation markers MHC class II, CD40, and CD86. At the peak of disease, microglial cells underwent a second step of activation, which was characterized by a further enhancement in activation marker expression along with a reduction in proliferation. The second step of microglial cell activation was CD40-dependent and the failure of CD40-deficient microglial cells to achieve a full level of activation during EAE was correlated with reduced expansion of encephalitogenic T cells and leukocyte infiltration in the CNS, and amelioration of clinical symptoms. Thus, our findings demonstrate that CD40 expression on microglial cells is necessary to complete their activation process during EAE, which is important for disease progression.