Teriflunomide is an orally available anti-inflammatory drug that prevents T and B cell proliferation and function by inhibition of dihydroorotate dehydrogenase. It is currently being developed for the treatment of multiple sclerosis (MS). We report here for the first time the anti-inflammatory effects of teriflunomide in the Dark Agouti rat model of experimental autoimmune encephalomyelitis (EAE). Neurological evaluation demonstrated that prophylactic dosing of teriflunomide at 3 and 10 mg/kg delayed disease onset and reduced maximal and cumulative scores. Therapeutic administration of teriflunomide at doses of 3 or 10 mg/kg at disease onset significantly reduced maximal and cumulative disease scores as compared to vehicle treated rats. Dosing teriflunomide at disease remission, at 3 and 10 mg/kg, reduced the cumulative scores for the remaining course of the disease. Teriflunomide at 10 mg/kg significantly reduced inflammation, demyelination, and axonal loss when dosed prophylactically or therapeutically. In electrophysiological somatosensory evoked potential studies, therapeutic administration of teriflunomide, at the onset of disease, prevented both a decrease in waveform amplitude and an increase in the latency to waveform initiation in EAE animals compared to vehicle. Therapeutic dosing with teriflunomide at disease remission prevented a decrease in evoked potential amplitude, prevented an increase in latency, and enhanced recovery time within the CNS.