DNA methylation-dependent gene silencing is initiated by DNA methyltransferases (DNMTs) and mediated by methyl-binding domain proteins (MBDs), which recruit histone deacetylases (HDACs) to silence DNA, a process that is essential for normal development. Here, we show that the MBD proteins MBD2 and MeCP2 regulate distinct transitional stages of olfactory receptor neuron (ORN) differentiation in vivo. Mbd2 null progenitors display enhanced proliferation, recapitulated by HDAC inhibition, and Mbd2 null ORNs have a decreased lifespan. Mecp2 null ORNs, on the other hand, temporarily stall at the stage of terminal differentiation, retaining expression of the immature neuronal protein GAP43 after initiating expression of mature neuronal genes. The Gap43 promoter is highly methylated in the mature, but not embryonic olfactory epithelium (OE), suggesting that Gap43 may be regulated by DNA methylation during ORN differentiation. Thus, MBD2 and MeCP2 may mediate distinct, sequential transitions of ORN differentiation-an epigenetic mechanism that may be relevant to developmental regulation throughout the nervous system.