The progression of progenitors to oligodendrocytes requires proliferative arrest and the activation of a transcriptional program of differentiation. While regulation of cell cycle exit has been extensively characterized, the molecular mechanisms responsible for the initiation of differentiation remain ill-defined. Here, we identify the transcription factor Yin Yang 1 (YY1) as a critical regulator of oligodendrocyte progenitor differentiation. Conditional ablation of yy1 in the oligodendrocyte lineage in vivo induces a phenotype characterized by defective myelination, ataxia, and tremor. At the cellular level, lack of yy1 arrests differentiation of oligodendrocyte progenitors after they exit from the cell cycle. At the molecular level, YY1 acts as a lineage-specific repressor of transcriptional inhibitors of myelin gene expression (Tcf4 and Id4), by recruiting histone deacetylase-1 to their promoters during oligodendrocyte differentiation. Thus, we identify YY1 as an essential component of the transcriptional network regulating the transition of oligodendrocyte progenitors from cell cycle exit to differentiation.