Myelin-associated glycoprotein (MAG) is a potent inhibitor of axonal regeneration when used as a substrate for growth. However, to be characterized definitively as inhibitory rather than nonpermissive, MAG must also inhibit axonal regeneration when presented in solution. Here, we show that soluble dMAG (extracellular domain only), released in abundance from myelin and found in vivo and chimeric MAG-Fc, can potently inhibit axonal regeneration. For both dMAG and MAG-Fc, inhibition is dose-dependent. If myelin-conditioned medium is immunodepleted of dMAG, or if a MAG antibody is included with MAG-Fc, inhibition is completely neutralized. Together with MAG's ability to induce growth cone collapse, these results demonstrate that MAG is an inhibitory molecule and not merely nonpermissive. The results also suggest that MAG binds to a specific receptor and initiates a signal transduction cascade to effect inhibition. Importantly, these results indicate that soluble dMAG detected in vivo could contribute to the lack of regeneration in the mammalian CNS after injury.