The myelin sheaths that surround the thick axons of the peripheral nervous system are produced by the highly specialized Schwann cells. Differentiation of Schwann cells and myelination occur in discrete steps. Each of these requires coordinated expression of specific proteins in a precise sequence, yet the regulatory mechanisms controlling protein expression during these events are incompletely understood. Here we report that Schwann cell-specific ablation of the enzyme Dicer1, which is required for the production of small non-coding regulatory microRNAs, fully arrests Schwann cell differentiation, resulting in early postnatal lethality. Dicer(-/-) Schwann cells had lost their ability to myelinate, yet were still capable of sorting axons. Both cell death and, paradoxically, proliferation of immature Schwann cells was markedly enhanced, suggesting that their terminal differentiation is triggered by growth-arresting regulatory microRNAs. Using microRNA microarrays, we identified 16 microRNAs that are upregulated upon myelination and whose expression is controlled by Dicer in Schwann cells. This set of microRNAs appears to drive Schwann cell differentiation and myelination of peripheral nerves, thereby fulfilling a crucial function for survival of the organism.