The major challenge for progressive multiple sclerosis therapy is the promotion of remyelination from inflammation-induced demyelination. A switch from an M1- to an M2-dominant polarization of microglia is critical in these repair processes. In this study, we identified the homeobox gene msh-like homeobox-3 (Msx3) as a new pivotal regulator for microglial polarization. MSX3 was induced during microglia M2 polarization and repressed in M1 cells. The expression of MSX3 in microglia was dynamically regulated during experimental autoimmune encephalomyelitis (EAE), which is an animal model of multiple sclerosis. The overexpression of MSX3 in microglia promoted M2 but impeded M1 polarization. Interrupting MSX3 expression in microglia accelerated inflammation-induced demyelination and neurodegeneration. The conditioned medium from MSX3-transduced microglia promoted oligodendrocyte progenitor survival, differentiation, and neurite outgrowth. The adoptive transfer of MSX3-transduced microglia suppressed EAE and facilitated remyelination within the murine CNS in EAE and the LPC model. Mechanically, chromatin immunoprecipitation assays also indicated that MSX3 directly regulated three key genes associated with microglia M2 polarization, including Pparg, Stat6, and Jak3. Importantly, we found that overexpression of MSX3 in human-derived microglia represents the M2 phenotype and ameliorated EAE after intraventricular injection. Our findings suggest a new homeobox protein-dependent mechanism for driving microglia M2 polarization and identify MSX3 as an attractive therapeutic approach for preventing inflammation-induced demyelination and promoting remyelination.