Although neural stem cells hold considerable promise for treatment of the injured or degenerating nervous system, their current human sources are embryonic stem cells and fetally derived neural tissue. Here, we asked whether rodent and human skin-derived precursors (SKPs), neural crest-related precursors found in neonatal dermis, represent a source of functional, myelinating Schwann cells. Specifically, cultured SKPs responded to neural crest cues such as neuregulins to generate Schwann cells, and these Schwann cells proliferated and induced myelin proteins when in contact with sensory neuron axons in culture. Similar results were obtained in vivo; 6 weeks after transplantation of naive SKPs or SKP-derived Schwann cells into the injured peripheral nerve of wild-type or shiverer mutant mice (which are genetically deficient in myelin basic protein), the majority of SKP-derived cells had associated with and myelinated axons. Naive rodent or human SKPs also generated Schwann cells that myelinated CNS axons when transplanted into the dysmyelinated brain of neonatal shiverer mice. Thus, neonatal SKPs generate functional neural progeny in response to appropriate neural crest cues and, in so doing, provide a highly accessible source of myelinating cells for treatment of nervous system injury, congenital leukodystrophies, and dysmyelinating disorders.