Multiple sclerosis (MS) is an autoimmune disease characterized by demyelination of the central nervous system (CNS). Autologous hematopoietic cell transplantation (HCT) shows promising benefits for relapsing-remitting MS in open-label clinical studies, but the cellular mechanisms underlying its therapeutic effects remain unclear. Using single-nucleus RNA sequencing, we identify a reactive myeloid cell state in chronic experimental autoimmune encephalitis (EAE) associated with neuroprotection and immune suppression. HCT in EAE mice results in an increase of the neuroprotective myeloid state, improvement of neurological deficits, reduced number of demyelinated lesions, decreased number of effector T cells and amelioration of reactive astrogliosis. Enhancing myeloid cell incorporation after a modified HCT further improved these neuroprotective effects. These data suggest that myeloid cell manipulation or replacement may be an effective therapeutic strategy for chronic inflammatory conditions of the CNS.