Type III neuregulins exposed on axon surfaces control myelination of the peripheral nervous system. It has been shown, for example, that threshold levels of type III beta1a neuregulin dictate not only the myelination fate of axons but also myelin thickness. Here we show that another neuregulin isoform, type III-beta3, plays a distinct role in myelination. Neuronal overexpression of this isoform in mice stimulates Schwann cell proliferation and dramatically enlarges peripheral nerves and ganglia-which come to resemble plexiform neurofibromas-but have no effect on myelin thickness. The nerves display other neurofibroma-like properties, such as abundant collagen fibrils and abundant dissociated Schwann cells that in some cases produce big tumors. Moreover, the organization of Remak bundles is dramatically altered; the small-caliber axons of each bundle are no longer segregated from one another within the cytoplasm of a nonmyelinating Schwann cell but instead are close packed and the whole bundle wrapped as a single unit, frequently by a compact myelin sheath. Because Schwann cell hyperproliferation and Remak bundle degeneration are early hallmarks of type I neurofibromatosis, we suggest that sustained activation of the neuregulin pathway in Remak bundles can contribute to neurofibroma development.