Optic neuritis is a frequent and early symptom of multiple sclerosis (MS). Conventional magnetic resonance (MR) techniques provide means to assess multiple MS-related pathologies, including axonal injury, demyelination, and inflammation. A method to directly and non-invasively probe white-matter function could further elucidate the interplay of underlying pathologies and functional impairments. Previously, we demonstrated a significant 27% activation-associated decrease in the apparent diffusion coefficient of water perpendicular to the axonal fibers (ADC) in normal C57BL/6 mouse optic nerve with visual stimulation using diffusion fMRI. Here we apply this approach to explore the relationship between visual acuity, optic nerve pathology, and diffusion fMRI in the experimental autoimmune encephalomyelitis (EAE) mouse model of optic neuritis. Visual stimulation produced a significant 25% (vs. baseline) ADC decrease in sham EAE optic nerves, while only a 7% (vs. baseline) ADC decrease was seen in EAE mice with acute optic neuritis. The reduced activation-associated ADC response correlated with post-MRI immunohistochemistry determined pathologies (including inflammation, demyelination, and axonal injury). The negative correlation between activation-associated ADC response and visual acuity was also found when pooling EAE-affected and sham groups under our experimental criteria. Results suggest that reduction in diffusion fMRI directly reflects impaired axonal-activation in EAE mice with optic neuritis. Diffusion fMRI holds promise for directly gauging in vivo white-matter dysfunction or therapeutic responses in MS patients.