Inflammatory demyelination and axonal damage of the CNS are hallmarks of multiple sclerosis (MS) and its animal model, experimental autoimmune encephalomyelitis (EAE). Fingolimod (FTY720), the first FDA-approved oral medication for MS, suppresses acute disease but is less effective at the chronic stage, and whether it has a direct effect on neuroregeneration in MS and EAE remains unclear. Here we show that FTY720, at nanomolar concentrations, effectively protected survival of neural stem cells (NSCs) and enhanced their development into mature oligodendrocytes (OLGs) in vitro, primarily through the S1P3 and S1P5 receptors. In vivo, treatment with either FTY720 or NSCs alone had no effect on the secondary progressive stage of remitting-relapsing EAE, but a combination therapy with FTY720 and NSCs promoted significant recovery, including ameliorated clinical signs and CNS inflammatory demyelination, enhanced MBP synthesis and remyelination, inhibited axonal degeneration, and reduced astrogliosis. Moreover, FTY720 significantly improved incorporation and survival of transplanted NSCs in the CNS and drove their differentiation into more OLGs but fewer astrocytes, thus promoting remyelination and CNS repair processes in situ. Our data demonstrate a novel effect of FTY720 on NSC differentiation and remyelination, broadening its possible application to NSC-based therapy in the secondary progressive stage of MS.