We have identified a novel serine protease, myelencephalon-specific protease (MSP), which is preferentially expressed in the adult CNS, and therein, is abundant in both neurones and oligodendroglia. To determine the potential activity of MSP in CNS demyelination, we examined its expression in multiple sclerosis lesions and in two animal models of multiple sclerosis: Theiler's murine encephalomyelitis virus (TMEV) and myelin oligodendrocyte glycoprotein (MOG)-induced experimental allergic encephalomyelitis (EAE) in marmosets. High levels of MSP were present within infiltrating mononuclear cells, including macrophages and T cells, which characteristically fill sites of demyelination, both in multiple sclerosis lesions and in animal models of this disease. The functional consequence of excess MSP on oligodendroglia was determined in vitro by evaluating the effects of recombinant MSP (r-MSP) on oligodendrocyte survival and process number. Application of excess r-MSP resulted in a dramatic loss of processes from differentiated oligodendrocytes, and a parallel decrease in process outgrowth from immature cells. Transfection of oligodendrocyte progenitors with an MSP-green fluorescent protein construct produced similar changes in oligodendrocyte process number. Importantly, r-MSP did not affect oligodendrocyte survival or differentiation towards the sulphatide-positive lineage. We further demonstrate that myelin basic protein, and to a lesser extent myelin oligodendrocyte glycoprotein, can serve as MSP substrates. These studies support the hypothesis that excess MSP, as is present in inflammatory CNS lesions, promotes demyelination.