Galactocerebroside and sulfatide, major galactosphingolipid components of oligodendrocyte plasma membranes and myelin, are first expressed at a critical point, when progenitors cease to proliferate and commence terminal differentiation. We showed previously that an antibody to galactocerebroside/sulfatide arrested terminal differentiation, suggesting a role for these galactolipids in oligodendrocyte differentiation. We have now investigated the differentiation of oligodendrocytes (1) in response to other anti-galactolipid antibodies, showing that anti-sulfatide O4 but not anti-galactocerebroside O1 blocks terminal differentiation, perhaps by mimicking an endogenous ligand, and (2) in a transgenic mouse unable to synthesize these lipids because of mutation of the gene for ceramide galactosyltransferase, a key enzyme for galactosphingolipid synthesis. We find that galactosyltransferase mRNA expression begins at the late progenitor [pro-oligodendroblast (Pro-OL)] stage of the lineage and that the late progenitor marker pro-oligodendroblast antigen is not synthesized in the absence of galactosyltransferase. The principal outcome of the elimination of these galactolipids is a two- to threefold enhancement in the number of terminally differentiated oligodendrocytes both in culture and in vivo. Because the general pattern of differentiation and the level of progenitor proliferation and survival appear to be unaltered in the mutant cultures, we conclude that the increased number of oligodendrocytes is caused by an increased rate and probability of differentiation. In agreement with these two experimental approaches, we present a model in which galactosphingolipids (in particular galactocerebroside and/or sulfatide) act as sensors and/or transmitters of environmental information, interacting with endogenous ligands to function as negative regulators of oligodendrocyte differentiation, monitoring the timely progress of Pro-OLs into terminally differentiating, myelin-producing oligodendrocytes.