FTY720 (fingolimod) is an oral sphingosine 1-phosphate (S1P) receptor modulator under development for the treatment of multiple sclerosis (MS). To elucidate its effects in the central nervous system (CNS), we compared functional parameters of nerve conductance in the DA rat model of myelin oligodendrocyte glycoprotein (MOG)-induced experimental autoimmune encephalomyelitis (EAE) after preventive and therapeutic treatment. We demonstrate that prophylactic therapy protected against the emergence of EAE symptoms, neuropathology, and disturbances to visual and somatosensory evoked potentials (VEP, SEP). Moreover, therapeutic treatment from day 25 to 45 markedly reversed paralysis in established EAE and normalized the electrophysiological responses, correlating with decreased demyelination in the brain and spinal cord. The effectiveness of FTY720 in this model is likely due to several contributing factors. Evidence thus far supports its role in the reduction of inflammation and preservation of blood-brain-barrier integrity. FTY720 may also act via S1P receptors in glial cells to promote endogenous repair mechanisms that complement its immunomodulatory action.