Myelin-associated glycoprotein (MAG) cDNA clones for the small (p67) and large (p72) forms were expressed in heterologous cells. Purified recombinant MAG protein was incorporated into fluorescent liposomes, and both forms were shown to bind predominantly to neurites in DRG or spinal cord cultures. This adhesion was completely blocked by Fab fragments of monoclonal anti-MAG antibody. Liposomes prepared with the control protein glycophorin or no protein failed to bind neurites. Small cerebellar neurons, which are not myelinated in vivo, failed to bind MAG liposomes. In a second test of function, p67 MAG-transfected fibroblasts were markedly enhanced in their ability to promote DRG neurite extension over a 2 day culture period compared with control fibroblasts not expressing MAG. Neurite extension was blocked by anti-MAG antibodies. These results show that both forms of MAG can facilitate the interactions between glial cells and neurites that ultimately lead to myelin formation.