The myelinogenic potential of an oligodendrocyte cell line (N20.1) immortalized by transformation with a temperature-sensitive retrovirus (Verity et al., J Neurochem 60:577-587, 1993) has been evaluated in a co-culture system utilizing dorsal root ganglion neurons. When N20.1 cells were placed in co-culture with dorsal root ganglion neurons at 39 degrees C, the temperature at which TAg expression is decreased relative to that in cells maintained at 34 degrees C, there was a dramatic decrease in the N20.1 proliferation rate compared to cells maintained in the absence of neurons at either temperature. This decrease in proliferation was observed within 3 days of co-culture and appeared to precede a further decrease in TAg expression that occurred with time in response to the neurons. In co-cultures the immunoreactivity of N20.1 cells for galactocerebroside increased with time, and the cells appeared to establish contact with neurites and initiate formation of membranous sheets. When the duration of co-culture was extended to 52 days, myelin-like figures were noted by electron microscopy. Thus, the extent of N20.1 differentiation is dependent on the presence of neurons and the duration of co-culture. This culture system represents a potentially powerful tool for the study of neuronal-glial interactions influencing myelinogenesis and remyelination.