Mycobacterium leprae (ML) infection causes nerve damage that often leads to permanent loss of cutaneous sensitivity and limb deformities, but understanding of the pathogenesis of leprous neuropathy that would lead to more effective treatments is incomplete. We studied reactional leprosy patients with (n = 9) and without (n = 8) acute neuritis. Nerve conduction studies over the course of the reactional episode showed the findings of demyelination in all patients with neuritis. Evaluation of patient sera revealed no correlation of the presence of antibodies against gangliosides and the clinical demyelination. In nerve biopsies of 3 patients with neuritis, we identified tumor necrosis factor (TNF), TNF receptors, and TNF-converting enzyme in Schwann cells (SCs) using immunofluorescence. To elucidate immunopathogenetic mechanisms, we performed experiments using a human SC line. ML induced transmembrane TNF and TNF receptor 1 expression in the SCs; TNF also induced interleukin (IL)-6 and IL-8 production by the SCs; and ML induced IL-23 secretion, indicating involvement of this previously unrecognized factor in leprosy nerve damage. These data suggest that ML may contribute to TNF-mediated inflammation and focal demyelination by rendering SCs more sensitive to TNF within the nerves of patients with leprous neuropathy.