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Japanese encephalitis (JE) is a clinical manifestation of the brain inflammation caused by JE virus (JEV). This virus imparts permanent neurological damage, thus imposing a heavy burden on public health and society. Neuro-inflammation is the hallmark of JEV infection. The prolonged pro-inflammatory response is due primarily to microglial activation, which eventually leads to severe encephalitis. A continual effort is going on in the scientific community toward an understanding of cellular and molecular factors that are involved in JEV neuro-invasion and inflammatory processes. This review not only gives a comprehensive update on the recent advances on understanding virus structure and mechanisms of pathogenesis but also briefly discusses crucial unresolved issues. We also highlight challenging areas of research that might open new avenues for controlling virus-induced neuro-inflammation.