IL-10 plays a vital role in controlling the inflammatory response during acute Toxoplasma gondii infection, however the production of IL-10 during the chronic phase of toxoplasmosis has been associated with parasite persistence. To address this paradox, the production and effect of IL-10 in the brain during toxoplasmic encephalitis (TE) was investigated. Analysis of brain mononuclear cells (BMNC) from chronically infected mice revealed that infiltrating macrophages and CD4(+) T cells were the major sources of IL-10. Endogenous levels of IL-10 inhibited the production of IL-12, IFN-gamma, TNF-alpha, and IL-6 from both hematopoetic and non-hematopoetic cells in the brain, as well as anti-microbial activity of astrocytes. Furthermore, IL-10-/- mice that progressed to the chronic phase of infection had equivalent parasite burden to WT mice but developed a lethal inflammatory response within the brain characterized by increased numbers of CD4(+) T cells and macrophages, and elevated production of inflammatory cytokines. Finally, partial depletion of CD4(+) T cells decreased the severity of the inflammation in the brain and allowed IL-10-/- mice to survive infection. Together these results point to a vital role for IL-10 in the control of CD4(+) T cell mediated inflammation in the brain during TE.