Cell differentiation in the nervous system is dictated by specific patterns of gene expression. We have investigated the role of gene methylation during differentiation of PC12 pheochromocytoma cells in response to nerve growth factor (NGF). Here we present evidence that NGF-induced neuronal differentiation is dependent on gene methylation and that this process is not associated with inhibition of cell cycle arrest. The DNA methylation inhibitor 5-azacytidine is able to block the neurite outgrowth of NGF-treated PC12 cells. Inhibition of neuronal differentiation is accompanied by significant changes in the protein and mRNA expression pattern of the high-affinity NGF receptor (trkA). These studies reveal a new growth factor receptor-mediated mechanism of cellular differentiation dependent on gene methylation. The results indicate that DNA methyltransferase is necessary for the initiation phase of NGF-induced neurite formation in PC12 cells and has a role in growth factor-dependent cellular responses distinct from cell proliferation.