Stem cell transplantation is an investigational therapy for multiple sclerosis. The authors describe a case of catastrophic demyelinating encephalomyelitis following stem cell transplantation in a 17-year-old girl. Nine months after an initial diagnosis of multiple sclerosis, she underwent stem cell transplantation in Costa Rica. Subsequently, she deteriorated and was transported back to the United States with headache and vomiting progressing to quadriparesis, locked-in syndrome, and superimposed encephalopathy. Magnetic resonance imaging and brain biopsy were consistent with fulminant demyelinating encephalomyelitis with enhancing parenchyma and leptomeninges. Cerebrospinal fluid analysis revealed lymphocytic pleocytosis and high protein. The protracted illness required tracheostomy and gastrostomy. After methyleprednisone, intravenous immunoglobulin, and cyclophosphamide, she improved during 2.5 months to an ambulatory, functionally independent state. Subsequently, typical less severe multiple sclerosis relapses occurred. This case demonstrates that stem cell transplantation may provoke life-threatening encephalomyelitis in patients with multiple sclerosis. This highlights the need to restrict transplantation to trials with appropriate safety controls.