MicroRNAs, by modulating gene expression, have been implicated as regulators of various cellular and physiological processes, including differentiation, proliferation, and cancer. Here, we study the role of microRNAs in Schwann cell (SC) differentiation by conditional removal of the microRNA processing enzyme Dicer1. We reveal that both male and female mice lacking Dicer1 in SC (Dicer1 conditional knock-outs) display a severe neurological phenotype resembling congenital hypomyelination. Ultrastructural analyses show that many SC lacking Dicer1 are stalled in differentiation at the promyelinating state and fail to myelinate axons. Gene expression analyses reveal a failure to extinguish genes characteristic of the undifferentiated state such as Sox2, Jun, and Ccnd1. Sox2 and Jun are well characterized negative regulators of SC differentiation. Consistent with Sox2/Jun maintenance, Egr2, a master regulator of the myelinating program, is drastically downregulated and likely accounts for the myelination defect. We posit a model wherein microRNAs are critical for downregulation of antecedent programs of gene expression. In SC differentiation, this is particularly relevant in the key developmental transition from a promyelinating to myelinating SC.