Multiple sclerosis (MS) affects both white matter and gray matter (GM). Measurement of GM volumes is a particularly useful method to estimate the total extent of GM tissue damage because it can be done with conventional magnetic resonance images (MRI). Many algorithms exist for segmentation of GM, but none were specifically designed to handle issues associated with MS, such as atrophy and the effects that MS lesions may have on the classification of GM. A new GM segmentation algorithm has been developed specifically for calculation of GM volumes in MS patients. The new algorithm uses a combination of intensity, anatomical, and morphological probability maps. Several validation tests were performed to evaluate the algorithm in terms of accuracy, reproducibility, and sensitivity to MS lesions. The accuracy tests resulted in error rates of 1.2% and 3.1% for comparisons to BrainWeb and manual tracings, respectively. Similarity indices indicated excellent agreement with the BrainWeb segmentation (0.858-0.975, for various levels of noise and rf inhomogeneity). The scan-rescan reproducibility test resulted in a mean coefficient of variation of 1.1% for GM fraction. Tests of the effects of varying the size of MS lesions revealed a moderate and consistent dependence of GM volumes on T2 lesion volume, which suggests that GM volumes should be corrected for T2 lesion volumes using a simple scale factor in order to eliminate this technical artifact. The new segmentation algorithm can be used for improved measurement of GM volumes in MS patients, and is particularly applicable to retrospective datasets.