Rapid impulse conduction requires electrical insulation of axons by myelin, a cholesterol-rich extension of the glial cell membrane with a characteristic composition of proteins and lipids. Mutations in several myelin protein genes cause endoplasmic reticulum (ER) retention and disease, presumably attributable to failure of misfolded proteins to pass the ER quality control. Because many myelin proteins partition into cholesterol-rich membrane rafts, their interaction with cholesterol could potentially be part of the ER quality control system. Here, we provide in vitro and in vivo evidence that the major peripheral myelin protein P0 requires cholesterol for exiting the ER and reaching the myelin compartment. Cholesterol dependency of P0 trafficking in heterologous cells is mediated by a cholesterol recognition/interaction amino acid consensus (CRAC) motif. Mutant mice lacking cholesterol biosynthesis in Schwann cells suffer from severe hypomyelination with numerous uncompacted myelin stretches. This demonstrates that high-level cholesterol coordinates P0 export with myelin membrane synthesis, which is required for the correct stoichiometry of myelin components and for myelin compaction.