We have examined the interfaces between protein and lipid sulfation, the response of progenitor cells to specific growth factors, and developmental lineage progression. The experimental system used is the oligodendrocyte (OL), the cell responsible for myelination of axons in the central nervous system. The ability to regulate the growth and differentiation of oligodendrocytes in primary cultures growing in defined medium offers a particularly attractive model for these interrelated areas of cell and developmental biology. Sulfation was inhibited in this system by growing cells in sodium chlorate, a competitive inhibitor of sulfation. Four principal conclusions are drawn from the data. First, heparan sulfate proteoglycan is a necessary cofactor for the environmental regulation by FGF-2 of nontransformed oligodendrocyte progenitors, including both the mitogenic response and the inhibition of terminal differentiation at a specific stage of the lineage. Second, the differentiation of oligodendrocyte progenitors from an early to a mature stage can occur in the absence of sulfation. Third, however, the formation of cellular processes and myelin-like sheets is retarded, leading to the prediction that sulfated molecules are critically involved in aspects of oligodendrocyte differentiation directly relating to myelination per se. Fourth, the developmental proligodendroblast antigen, POA, is a sulfated molecule. The results provide clear evidence for the importance of sulfation for the responses of OL progenitors to FGF-2 and for OL cytoarchitectural maturation, while demonstrating an ability of OL progenitors to undergo lineage progression in its absence.