Neural stem cells (NSCs) have therapeutic potential in experimental autoimmune encephalomyelitis (EAE), an animal model of multiple sclerosis (MS); however, to date, their use has resulted in only limited clinical and pathological improvement. To enhance their therapeutic capacity, in the present study, we transduced bone marrow-derived NSCs (BM-NSCs) with neurotrophin 3 (NT-3), a potent neurotrophic factor that is both neuroprotective and immunomodulatory. We found that BM-NSCs transduced with NT-3 reduced central nervous system (CNS) inflammation and neurological deficits in ongoing EAE significantly more than conventional NSC therapy, and, in addition, had the following advantages: (i) enhanced BM-NSC proliferation and differentiation into oligodendrocytes and neurons, as well as inhibited differentiation into astrocytes, thus promoting remyelination and neuronal repopulation, and reducing astrogliosis; (ii) enhanced anti-inflammatory capacity of BM-NSCs, thus more effectively suppressing CNS inflammation and accelerating remyelination; (iii) the easy accessibility of BM-NSCs provides another advantage over brain-derived NSCs for MS therapy; and (iv) a novel Tet-on system we used enables efficient control of NT-3 expression. Thus, our study provides a novel approach to break the vicious inflammation-demyelination cycle, and could pave the way to an easily accessible and highly effective therapy for CNS inflammatory demyelination.