Dysregulation of cholesterol metabolism underlies neurodegenerative disease and is increasingly implicated in neuroinflammatory diseases, such as multiple sclerosis (MS). Cytochrome P450 family 7 subfamily B member 1 (CYP7B1) is a key enzyme in alternative cholesterol metabolism. A recessive mutation in the gene CYP7B1 is known to cause a neurodegenerative disease, hereditary spastic paraplegia type 5 and oxysterol accumulation. However, the role of CYP7B1 in neuroinflammation has been little revealed. In this study, we induced experimental autoimmune encephalomyelitis (EAE), as a murine model of MS, using CYP7B1 homozygous knockout (KO) mice. We found that CYP7B1 deficiency can significantly attenuate EAE severity. CYP7B1 deficiency is sufficient to reduce leukocyte infiltration into the central nervous system, suppress proliferation of pathogenic CD4+ T cells, and decrease myeloid cell activation during EAE. Additionally, live-animal imaging targeting translocator protein expression, an outer mitochondrial membrane protein biomarker of neuroinflammation, showed that CYP7B1 deficiency results in suppressed neuroinflammation. Using human monocyte-derived microglia-like cellular disease model and primary microglia of CYP7B1 KO mice, we also found that activation of microglia of CYP7B1 deficiency was impaired. These cumulative results suggest that CYP7B1 can regulate neuroinflammation, thus providing potential new targets for therapeutic intervention.