White matter neurons in multiple sclerosis brains are destroyed during demyelination and then replaced in some chronic multiple sclerosis lesions that exhibit a morphologically distinct population of activated microglia [Chang A, et al. (2008) Brain 131(Pt 9):2366–2375]. Here we investigated whether activated microglia secrete factors that promote the generation of neurons from white matter cells. Adult rat brain microglia (resting or activated with lipopolysaccharide) were isolated by flow cytometry and cocultured with neonatal rat optic nerve cells in separate but media-connected chambers. Optic nerve cells cocultured with activated microglia showed a significant increase in the number of cells of neuronal phenotype, identified by neuron-specific class III beta-tubulin (TUJ-1) labeling, compared with cultures with resting microglia. To investigate the possible source of the TUJ-1–positive cells, A2B5-positive oligodendrocyte progenitor cells and A2B5-negative cells were isolated and cocultured with resting and activated microglia. Significantly more TUJ-1–positive cells were generated from A2B5-negative cells (∼70%) than from A2B5-positive cells (∼30%). Mass spectrometry analysis of microglia culture media identified protease serine 2 (PRSS2) as a factor secreted by activated, but not resting, microglia. When added to optic nerve cultures, PRSS2 significantly increased neurogenesis, whereas the serine protease inhibitor, secretory leukocyte protease inhibitor, decreased activated microglia-induced neurogenesis. Collectively our data provide evidence that activated microglia increase neurogenesis through secretion of PRSS2.