The co-inhibitory B7-homologue 1 (B7-H1/PD-L1) influences adaptive immune responses and has been proposed to contribute to the mechanisms maintaining peripheral tolerance and limiting inflammatory damage in parenchymal organs. To understand the B7-H1/PD1 pathway in CNS inflammation, we analyzed adaptive immune responses in myelin oligodendrocyte glycoprotein (MOG)35–55-induced EAE and assessed the expression of B7-H1 in human CNS tissue. B7-H1–/– mice exhibited an accelerated disease onset and significantly exacerbated EAE severity, although absence of B7-H1 had no influence on MOG antibody production. Peripheral MOG-specific IFN-γ/IL-17 T cell responses occurred earlier and enhanced in B7-H1–/– mice, but ceased more rapidly. In the CNS, however, significantly higher numbers of activated neuroantigen-specific T cells persisted during all stages of EAE. Experiments showing a direct inhibitory role of APC-derived B7-H1 on the activation of MOG-specific effector cells support the assumption that parenchymal B7-H1 is pivotal for delineating T cell fate in the target organ. Compatible with this concept, our data investigating human brain tissue specimens show a strong up-regulation of B7-H1 in lesions of multiple sclerosis. Our findings demonstrate the critical importance of B7-H1 as an immune-inhibitory molecule capable of down-regulating T cell responses thus contributing to the confinement of immunopathological damage.