During peripheral nervous system development, successful communication between axons and Schwann cells is required for proper function of both myelinated and nonmyelinated nerve fibers. Alternatively spliced proteins belonging to the neuregulin1 (NRG1) gene family of growth and differentiation factors are essential for Schwann cell survival and peripheral nerve development. Although recent studies have strongly implicated membrane-bound NRG1 forms (type III) in the myelination at late stages, little is known about the role of soluble, heparin-binding forms of NRG1 (type I/II) in regulating early Schwann cell development in vivo. These forms are rapidly released from axons in vitro by Schwann-cell-secreted neurotrophic factors and, unlike membrane-bound forms, have a unique ability to diffuse and adhere to heparan sulfate-rich cell surfaces. Here, we show that axon-derived soluble NRG1 translocates from axonal to Schwann cell surfaces in the embryonic chick between days 5 and 7, corresponding to the critical period of Schwann cell survival. Downregulating endogenous type I/II NRG1 signaling either with a targeted NRG1 antagonist or by shRNA blocks their differentiation from precursors into immature Schwann cells and increases programmed cell death, whereas upregulating NRG1 rescues Schwann cells. Exogenous BDNF also promotes Schwann cell survival through promoting the local release of axonal NRG1. Consistently, increased Schwann cell death occurs both in trkB knock-out mice and after knocking down axonal trkB in chick embryos, which can then be rescued with soluble NRG1. These findings suggest a localized, axoglial feedback loop through soluble NRG1 and BDNF critical for early Schwann cell survival and differentiation.