Terminal cellular differentiation is generally accompanied by exit from the cell cycle but the molecular basis of how the two events are coupled is poorly understood. In the central nervous system (CNS) the terminally differentiated, non-proliferating myelin-synthesizing cells, oligodendrocytes, arise from stem cells that are proliferation competent. To study the molecular mechanisms that link oligodendrocyte differentiation and cell cycle control, the D6P2T cell line has been used. This cell line responds similarly to oligodendrocytes in culture in response to increased cyclic AMP (cAMP). Upon increasing cAMP levels, D6P2T cells increase transcription of the endogenous myelin basic protein (MBP) gene. The increase in MBP gene transcription is accompanied by withdrawal of the cells from the cell cycle. The mechanism of cell cycle withdrawal in response to cAMP was found to involve a dramatic increase in the level of the cyclin-dependent kinase (cdk) inhibitor p27kip1 with little or no change in the levels of the cyclins D1 and E. The increase in p27kip1 is at least partially attributable to an increase in the mRNA levels for p27kip1. A striking increase in the cdk inhibitor p27kip1 was also shown to occur in vivo in oligodendrocytes, the cells responsible for myelination in the CNS. In contrast to D6P2T cells, however, this increase in p27kip1 was accompanied by a decrease in the levels of cyclin E.