Overcoming remyelination failure is a major goal of new therapies for demyelinating diseases like multiple sclerosis. LINGO-1, a key negative regulator of myelination, is a transmembrane signaling protein expressed in both neurons and oligodendrocytes. In neurons, LINGO-1 is an integral component of the Nogo receptor complex, which inhibits axonal growth via RhoA. Because the only ligand-binding subunit of this complex, the Nogo receptor, is absent in oligodendrocytes, the extracellular signals that inhibit myelination through a LINGO-1-mediated mechanism are unknown. Here we show that LINGO-1 inhibits oligodendrocyte terminal differentiation through intercellular interactions and is capable of a self-association in trans. Consistent with previous reports, overexpression of full-length LINGO-1 inhibited differentiation of oligodendrocyte precursor cells (OPCs). Unexpectedly, treatment with a soluble recombinant LINGO-1 ectodomain also had an inhibitory effect on OPCs and decreased myelinated axonal segments in cocultures with neurons from dorsal root ganglia. We demonstrated LINGO-1-mediated inhibition of OPCs through intercellular signaling by using a surface-bound LINGO-1 construct expressed ectopically in astrocytes. Further investigation showed that the soluble LINGO-1 ectodomain can interact with itself in trans by binding to CHO cells expressing full-length LINGO-1. Finally, we observed that soluble LINGO-1 could activate RhoA in OPCs. We propose that LINGO-1 acts as both a ligand and a receptor and that the mechanism by which it negatively regulates OPC differentiation and myelination is mediated by a homophilic intercellular interaction. Disruption of this protein-protein interaction could lead to a decrease of LINGO-1 inhibition and an increase in myelination.