DNA methylation is a major epigenetic factor that has been postulated to regulate cell lineage differentiation. We report here that conditional gene deletion of the maintenance DNA methyltransferase I (Dnmt1) in neural progenitor cells (NPCs) results in DNA hypomethylation and precocious astroglial differentiation. The developmentally regulated demethylation of astrocyte marker genes as well as genes encoding the crucial components of the gliogenic JAK-STAT pathway is accelerated in Dnmt1-/- NPCs. Through a chromatin remodeling process, demethylation of genes in the JAK-STAT pathway leads to an enhanced activation of STATs, which in turn triggers astrocyte differentiation. Our study suggests that during the neurogenic period, DNA methylation inhibits not only astroglial marker genes but also genes that are essential for JAK-STAT signaling. Thus, demethylation of these two groups of genes and subsequent elevation of STAT activity are key mechanisms that control the timing and magnitude of astroglial differentiation.