Deficits in cognitive function are associated with neuroinflammatory changes, typified by activation of glial cells and an alteration of the pro- and anti-inflammatory cytokine balance in the brain. Although there is evidence to suggest that activation of microglia is regulated by interaction with other cell types in the brain, the mechanism(s) involved is poorly understood. Here, we provide evidence that interaction between CD200 and its receptor plays a role in modulating microglial activation under conditions of chronic and acute inflammation of the brain. We report that interleukin-4 (IL-4) plays a central role in modulating expression of CD200 and identify a mechanism by which IL-4 directly controls microglial cell activation. Our findings provide the first demonstration of a role for IL-4 in modulating CD200 expression and suggest a mechanism for regulation of microglial activation in the intact CNS under inflammatory conditions.