Emergency hematopoiesis facilitates the rapid expansion of inflammatory immune cells in response to infections by pathogens, a process that must be carefully regulated to prevent potentially life threatening inflammatory responses. Here, we describe a novel regulatory role for the cytokine IFNγ that is critical for preventing fatal encephalitis after viral infection. HSV1 encephalitis (HSE) is triggered by the invasion of the brainstem by inflammatory monocytes and neutrophils. In mice lacking IFNγ (GKO), we observed unrestrained increases in G-CSF levels but not in GM-CSF or IL-17. This resulted in uncontrolled expansion and infiltration of apoptosis-resistant, degranulating neutrophils into the brainstem, causing fatal HSE in GKO but not WT mice. Excessive G-CSF in GKO mice also induced granulocyte derived suppressor cells, which inhibited T-cell proliferation and function, including production of the anti-inflammatory cytokine IL-10. Unexpectedly, we found that IFNγ suppressed G-CSF signaling by increasing SOCS3 expression in neutrophils, resulting in apoptosis. Depletion of G-CSF, but not GM-CSF, in GKO mice induced neutrophil apoptosis and reinstated IL-10 secretion by T cells, which restored their ability to limit innate inflammatory responses resulting in protection from HSE. Our studies reveals a novel, complex interplay among IFNγ, G-CSF and IL-10, which highlights the opposing roles of G-CSF and IFNγ in regulation of innate inflammatory responses in a murine viral encephalitis model and reveals G-CSF as a potential therapeutic target. Thus, the antagonistic G-CSF-IFNγ interactions emerge as a key regulatory node in control of CNS inflammatory responses to virus infection.