While the signals that direct neural crest cells to choose the glial lineage and generate Schwann cell precursors are still obscure, studies both in vivo and in vitro indicate that the survival and differentiation of these cells to form Schwann cells is regulated by at least two signals, neuregulin-1 and endothelin. We know little about the signals that cause some immature Schwann cells to choose myelin differentiation, while other cells form non-myelinating cells. Three transcription factors, Sox-10, Oct-6 and Krox-20, have been shown to play key roles in the Schwann cell lineage. The transcription factor Krox-20 has been identified as a major target of the signals that induce myelin differentiation. Gene transfer experiments in vitro show that this protein has a remarkable ability to promote a large number of phenotypic changes in immature Schwann cells that characterize the transition of these cells to myelinating cells. Furthermore, Krox-20 shows important functional interactions with neuregulin and transforming growth factor beta (TGFbeta), two factors that have been implicated in the regulation of myelination in postnatal nerves. Another signal of importance in developing peripheral nerves, Desert Hedgehog, secreted by Schwann cells directs formation of the peripheral nerve connective tissue sheaths. Ongoing gene screening experiments are likely to reveal new genes of interest in this system.