Inflammation is a major risk factor for neonatal white matter injury (NWMI), which is associated with later development of cerebral palsy. Although recent studies have demonstrated maturation arrest of oligodendrocyte progenitor cells (OPCs) in NWMI, the identity of inflammatory mediators with direct effects on OPCs has been unclear. Here, we investigated downstream effects of pro-inflammatory IL-1β to induce cyclooxygenase-2 (COX2) and prostaglandin E2 (PGE2) production in white matter. First, we assessed COX2 expression in human fetal brain and term neonatal brain affected by hypoxic-ischemic encephalopathy (HIE). In the developing human brain, COX2 was expressed in radial glia, microglia, and endothelial cells. In human term neonatal HIE cases with subcortical WMI, COX2 was strongly induced in reactive astrocytes with "A2" reactivity. Next, we show that OPCs express the EP1 receptor for PGE2, and PGE2 acts directly on OPCs to block maturation in vitro. Pharmacologic blockade with EP1-specific inhibitors (ONO-8711, SC-51089), or genetic deficiency of EP1 attenuated effects of PGE2. In an IL-1β-induced model of NWMI, astrocytes also exhibit "A2" reactivity and induce COX2. Furthermore, in vivo inhibition of COX2 with Nimesulide rescues hypomyelination and behavioral impairment. These findings suggest that neonatal white matter astrocytes can develop "A2" reactivity that contributes to OPC maturation arrest in NWMI through induction of COX2-PGE2 signaling, a pathway that can be targeted for neonatal neuroprotection.