Background: Brain volume loss occurs in patients with relapsing–remitting MS. Fingolimod reduced brain volume loss in three phase 3 studies. Objective: To evaluate whether the effect of fingolimod on disability progression was mediated by its effects on MRI lesions, relapses or brain volume loss, and the extent of this effect. Methods: Patients (992/1272; 78%) from the FTY720 Research Evaluating Effects of Daily Oral Therapy in Multiple Sclerosis (FREEDOMS) study were analyzed. Month-24 percentage brain volume change, month-12 MRI-active lesions and relapse were assessed. The Prentice criteria were used to test surrogate marker validity. The proportion of treatment effect on disability progression explained by each marker was calculated. Results: Two-year disability progression was associated with active T2 lesions (OR = 1.24; p = 0.001) and more relapses during year 1 (OR = 2.90; p < 0.001) and lower percentage brain volume change over two years (OR = 0.78; p < 0.001). Treatment effect on active T2 lesions, relapses and percentage brain volume change explained 46%, 60% and 23% of the fingolimod effect on disability. Multivariate analysis showed the number of relapses during year 1 (OR = 2.62; p < 0.001) and yearly percentage brain volume change over two years (OR = 0.85; p = 0.009) were independent predictors of disability progression, together explaining 73% of fingolimod effect on disability. Conclusions: The treatment effect on relapses and, to a lesser extent, brain volume loss were both predictors of treatment effect on disability; combining these predictors better explained the effect on disability than either factor alone.