During development of peripheral nerves, an apparently homogeneous pool of embryonic Schwann cells gives rise to two morphologically and antigenically distinct mature Schwann cell types. These are the myelin-forming cells associated with axons of larger diameter and the non-myelin-forming cells associated with axons of smaller diameter. The development of these cells from precursors that can be identified in early embryonic nerves can be followed with the help of antigenic differentiation markers. This development depends on Schwann cells retaining a close association with axons. The effect of axons can be mimicked in vitro by agents that elevate cAMP levels. This has given rise to the idea that the effects of axon-associated signals in Schwann cell development are to a significant extent mediated via elevation in Schwann cell cAMP levels. In vitro, the cAMP induced progression of cells from a premyelination state to a myelination state depends on withdrawal from the cell cycle. It is therefore possible that in vivo, the timing of myelin formation by individual Schwann cells is determined by signals that suppress proliferation.