Development of the nervous system requires that timely withdrawal from the cell cycle be coupled with initiation of differentiation. Ubiquitin-mediated degradation of the N-Myc oncoprotein in neural stem/progenitor cells is thought to trigger the arrest of proliferation and begin differentiation. Here we report that the HECT-domain ubiquitin ligase Huwe1 ubiquitinates the N-Myc oncoprotein through Lys 48-mediated linkages and targets it for destruction by the proteasome. This process is physiologically implemented by embryonic stem (ES) cells differentiating along the neuronal lineage and in the mouse brain during development. Genetic and RNA interference-mediated inactivation of the Huwe1 gene impedes N-Myc degradation, prevents exit from the cell cycle by opposing the expression of Cdk inhibitors and blocks differentiation through persistent inhibition of early and late markers of neuronal differentiation. Silencing of N-myc in cells lacking Huwe1 restores neural differentiation of ES cells and rescues cell-cycle exit and differentiation of the mouse cortex, demonstrating that Huwe1 restrains proliferation and enables neuronal differentiation by mediating the degradation of N-Myc. These findings indicate that Huwe1 links destruction of N-Myc to the quiescent state that complements differentiation in the neural tissue.