Myelinating glial cells exhibit a spectacular cytoarchitecture, because they polarize on multiple axes and domains. How this occurs is essentially unknown. The dystroglycan–dystrophin complex is required for the function of myelin-forming Schwann cells. Similar to other tissues, the dystroglycan complex in Schwann cells localizes with different dystrophin family members in specific domains, thus promoting polarization. We show here that cleavage of dystroglycan by matrix metalloproteinases 2 and 9, an event that is considered pathological in most tissues, is finely and dynamically regulated in normal nerves and modulates dystroglycan complex composition and the size of Schwann cell compartments. In contrast, in nerves of Dy2j/2jmice, a model of laminin 211 deficiency, metalloproteinases 2 and 9 are increased, causing excessive dystroglycan cleavage and abnormal compartments. Pharmacological inhibition of cleavage rescues the cytoplasmic defects of Dy2j/2jSchwann cells. Thus, regulated cleavage may be a general mechanism to regulate protein complex composition in physiological conditions, whereas unregulated processing is pathogenic and a target for treatment in disease.