In in chronic lesions of progressive multiple sclerosis (MS), failure in myelin regeneration and prolonged demyelination lead to permanent neurodegeneration and increased disability. Currently, minimal regenerative treatments are available to promote myelin repair (remyelination) for progressive MS. In acute demyelinating lesions, microglia have remarkable capacity to facilitate remyelination by clearance of cholesterol-rich myelin debris and supporting new oligodendrocytes to remyelinate white matter lesions. However, in chronic demyelinated lesions, microglial cholesterol metabolism and recycling process is dysregulated, resulting in a dysfunctional myelin-derived lipid-accumulating phenotype that eventually leads to microglial cell death. Currently, the underlying molecular mechanisms that drive microglia dysfunction in progressive MS are not fully understood. We previously reported downregulation of neuregulin-1 (Nrg-1), a key myelination factor, in human secondary progressive MS lesions and lesions of the MS mouse model, experimental auto-immune encephalomyelitis (EAE). Restoring Nrg-1 levels in EAE mice showed positive immunomodulatory effects and promoted a pro-regenerative phenotype in microglia in acute demyelinating lesions. In this study, we demonstrate that persistent dysregulation of Nrg-1 levels contribute to impaired remyelination in chronically demyelinated brain lesions using a cuprizone mouse model of chronic demyelination that models progressive MS and in Nrg-1 conditional knockout mice. Using parallel in vitro and in vivo experiments, we show that therapeutic restoration of Nrg-1 promotes remyelination in chronic demyelinated lesions by enhancing oligodendrogenesis and oligodendrocyte maturation in a microglia-dependent manner. Mechanistically, Nrg-1 treatment revitalizes the innate capacity of microglia for phagocytosis of myelin debris, cholesterol recycling and efflux through activation of LXR and PPAR signaling and upregulation of cholesterol transporters. These changes in microglial function improve their survival and provide paracrine support for oligodendrocyte remyelination in chronic demyelinated lesions. Altogether, this study, for the first time, links dysregulation of Nrg-1 to remyelination failure in chronic demyelinated lesions, and demonstrates the therapeutic potential of Nrg-1 to augment the ability of microglia for remyelination in progressive MS.