Diffusion imaging and T2-weighted magnetic resonance imaging were performed on 16 monkeys with experimental allergic encephalomyelitis (EAE), a model of the human demyelinating disease MS. The purpose of this study was to determine whether local changes in diffusion image intensity could be correlated with the formation of acute and chronic demyelinating lesions. Diffusion image analysis was restricted to the internal capsule of the brain because of its anatomic orientation of fiber pathways. Acute inflammatory EAE lesions were large and monophasic, as visualized by T2-weighted MRI, and were accompanied by a decrease in the diffusion MR image signal with the diffusion-sensitizing gradient in all three orthogonal directions (n = 27 brain regions, P < 0.005). Chronic demyelinating lesions were preceded by multiple inflammatory attacks, as visualized by MRI, and by a decrease in diffusion MR image signal with the diffusion-sensitizing gradient in the two orthogonal directions perpendicular to the fibers of the internal capsule (n = 18 brain regions, P < 0.005). However, for the chronic group, there was no significant change in the diffusion MR image signal with diffusion-sensitizing gradient parallel to the fibers of the internal capsule at the terminal scan, suggesting little change in the water diffusion within the nerve fibers. These results suggest that diffusion imaging holds promise for measuring subtle changes in water diffusion due to different types of brain damage.