We have used homologous recombination in embryonic stem cells to generate mice carrying a mutation in the gene encoding P0, an immunoglobulin-related recognition molecule and the major protein of peripheral nervous system myelin. These mice are deficient in normal motor coordination and exhibit tremors and occasional convulsions. Axons in their peripheral nerves are severely hypomyelinated and a subset of myelin-like figures and axons degenerate. The mutation leads to an abnormal regulation of some, but not all, molecules involved in myelination. These results demonstrate that P0 is essential for the normal spiraling, compaction, and maintenance of the peripheral myelin sheath and the continued integrity of associated axons. They further suggest that this protein conveys a signal that regulates Schwann cell gene expression.