Oligodendrocyte precursor cells (OPCs) can be differentiated in culture into either oligodendrocytes or type-2 astrocytes (2As), depending on the culture conditions. Whereas oligodendrocyte development can occur in the absence of inducing signals, 2A development apparently cannot. Fetal calf serum (FCS) and bone morphogenetic proteins (BMPs) are powerful inducers of 2A development in culture, but there is no compelling evidence that OPCs develop into astrocytes in vivo. We show here that BMPs are made by glial cells in the developing rat optic nerve, raising the question of why 2As do not normally develop in the optic nerve. We demonstrate that the BMP antagonist Noggin is strongly expressed by both OPCs and type-1 astrocytes in the developing optic nerve. We also show that depletion of Noggin by a small interference RNA inhibits OPC proliferation and induces 2A differentiation in the presence of a low, non-2A-inducing concentration of FCS. By contrast, enforced expression of Noggin in OPCs blocks FCS-induced 2A differentiation. These findings suggest that BMPs in FCS are largely responsible for the 2A-inducing activity of FCS and that Noggin may normally inhibit the formation of 2As in the developing CNS.