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Neuroinflammation, glial activation, and oxidative injury are the main pathological mechanisms of demyelination in multiple sclerosis (MS). Arbutin, a natural polyphenol compound, possesses antioxidant, anti-inflammatory, and neuroprotective properties whose therapeutic potential has not been studied in the experimental animal models of MS. In the present study, the efficiency of arbutin on lysolecthin (LPC)-induced local demyelination model was investigated. Demyelination was induced by micro-injection of 2 μl LPC (1%) into the rat optic chiasm and the treated group received daily injection of arbutin (50 mg/kg, i.p) during 2 weeks. Visual-evoked potential (VEP) recordings were used to functionally assess the visual pathway. Gene expression analysis was done to evaluate the arbutin effect on the inflammatory, stress oxidative-related mediators, and myelin markers. The myelin-specific staining was performed to assess demyelination and GFAP staining as an astrocyte marker. We found that arbutin significantly reduced P1-latency of VEPs waves and demyelination at 7 and 14 days post-demyelination. Arbutin decreased inflammatory cytokines (IL-1B, IL-17, TNF-α) and iNOS mRNA expression level. In addition, the expression level of anti-inflammatory cytokine (IL-10) and antioxidant mediators (Nrf-2 and HO-1) was enhanced by arbutin treatment. Arbutin increased MBP and Olig2 expression levels in demyelination context. Finally, arbutin attenuated GFAP as an astrocyte marker. Finally, this study demonstrates that arbutin improves functional recovery and myelin repair in the demyelinated optic chiasm through attenuation of inflammation, astrocyte activation, and oxidative stress. These findings might open new promising avenues for treating demyelinating disorders such as multiple sclerosis. Graphical abstract.