Understanding the gene programmes that regulate maintenance and differentiation of neural stem cells is a central question in stem cell biology. Virtually all neural stem cells maintain an undifferentiated state and the capacity to self-renew in response to fibroblast growth factor-2 (FGF2). Here we report that a repressor of transcription, the nuclear receptor co-repressor (N-CoR), is a principal regulator in neural stem cells, as FGF2-treated embryonic cortical progenitors from N-CoR gene-disrupted mice display impaired self-renewal and spontaneous differentiation into astroglia-like cells. Stimulation of wild-type neural stem cells with ciliary neurotrophic factor (CNTF), a differentiation-inducing cytokine, results in phosphatidylinositol-3-OH kinase/Akt1 kinase-dependent phosphorylation of N-CoR, and causes a temporally correlated redistribution of N-CoR to the cytoplasm. We find that this is a critical strategy for cytokine-induced astroglia differentiation and lineage-characteristic gene expression. Recruitment of protein phosphatase-1 to a specific binding site on N-CoR exerts a reciprocal effect on the cellular localization of N-CoR. We propose that repression by N-CoR, modulated by opposing enzymatic activities, is a critical mechanism in neural stem cells that underlies the inhibition of glial differentiation.