Arrest of cell division is a prerequisite for cells to enter a program of terminal differentiation. Mitogenesis and cytostasis of neuronal cell precursors can be induced by the same or by different growth or trophic factors. Response of PC12 cells to nerve growth factor (NGF) involves a proliferative phase that is followed by growth arrest and differentiation. Here we present evidence that the cytostatic effect of NGF is mediated by nitric oxide (NO), a second messenger molecule with both para- and autocrine properties that can diffuse freely and act within a restricted volume. We show that NGF induces different forms of nitric oxide synthase (NOS) in neuronal cells, that nitric oxide (NO) acts as a cytostatic agent in these cells, that inhibition of NOS leads to reversal of NGF-induced cytostasis and thereby prevents full differentiation, and that capacity of a mutant cell line to differentiate can be rescued by exogenous NO. We suggest that induction of NOS is an important step in the commitment of neuronal precursors and that NOS serves as a growth arrest gene, initiating the switch to cytostasis during differentiation.