Bace1 is an endopeptidase that cleaves the amyloid precursor protein at the beta-secretase site. Apart from this cleavage, the functional importance of Bace1 in other physiological events is unknown. We show here that Bace1 regulates the process of myelination and myelin sheath thickness in the central and peripheral nerves. In Bace1-null mice, the process of myelination was delayed and myelin thickness was markedly reduced, indicating that genetic deletion of Bace1 causes hypomyelination. Bace1-null mice also showed altered neurological behaviors such as elevated pain sensitivity and reduced grip strength. Further mechanistic studies showed an altered neuregulin-Akt signaling pathway in Bace1-null mice. Full-length neuregulin-1 was increased and its cleavage product was decreased in the CNS of Bace1-null mice. Furthermore, phosphorylated Akt was also reduced. Based upon these and previous studies, we postulate that neuronally enriched Bace1 cleaves neuregulin-1 and that processed neuregulin-1 regulates myelination by means of phosphorylation of Akt in myelin-forming cells.