Multiple sclerosis (MS) is a major demyelinating disease of the central nervous system (CNS) leading to functional deficits. The remyelination process is mediated by oligodendrocyte progenitor cells (OPCs). In this study, we tested the hypothesis that Fingolimod, a sphingosine 1-phosphate (S1P) receptor modulator, stimulates OPC differentiation into mature oligodendrocytes, in addition to its well-known anti-inflammatory effect. Using an animal model of MS, experimental autoimmune encephalomyelitis (EAE), we performed a dose-response study of Fingolimod (0.15 or 0.3mg/kg bw), which was initiated on the day of EAE onset. The neurological function was tested to determine the optimal dose of Fingolimod. Immunofluorescent staining was performed to measure the profile of OPC proliferation and differentiation. The mechanistic premise underlying the therapeutic effect of Fingolimod, was that Fingolimod stimulates the sonic hedgehog (Shh) pathway, and this pathway promotes OPC differentiation. To test this hypothesis, a loss-of-function study using cyclopamine, an inhibitor of the sonic hedgehog (Shh) pathway, was employed in vivo. Protein levels of the Shh pathway were measured by Western blot analysis. We found that Fingolimod treatment (0.3mg/kg bw) significantly decreased cumulative disease score compared to the EAE control group. Concurrently, OPCs and proliferation of OPCs were significantly increased in the white matter of the brain and spinal cord at day 7 and day 30 after EAE onset, and oligodendrocytes, myelination and differentiation of OPCs were significantly increased at day 30 compared with the EAE control group. EAE mice treated with Fingolimod exhibited substantially elevated levels of Shh, its receptor Smoothened and effector Gli1 in the white matter of the CNS. However, combination treatment of EAE mice with cyclopamine-Fingolimod decreased Fingolimod monotherapy elevated protein levels of Smoothened and Gli1, and abolished the effect of Fingolimod on OPC proliferation and differentiation, as well as on neurological function outcome. Together, these data demonstrate that Fingolimod is effective as a treatment of EAE by promoting OPC proliferation and differentiation, which facilitate remyelination. In addition, the Shh pathway likely contributes to the therapeutic effects of Fingolimod on OPCs.