Lipids play crucial roles in many aspects of glial cell biology, affecting processes ranging from myelin membrane biosynthesis to axo-glial interactions. In order to study the role of lipid metabolism in myelinating glial cells, we specifically deleted in Schwann cells the Lpin1 gene, which encodes the Mg2+-dependent phosphatidate phosphatase (PAP1) enzyme necessary for normal triacylglycerol biosynthesis. The affected animals developed pronounced peripheral neuropathy characterized by myelin degradation, Schwann cell dedifferentiation and proliferation, and a reduction in nerve conduction velocity. The observed demyelination is mediated by endoneurial accumulation of the substrate of the PAP1 enzyme, phosphatidic acid (PA). In addition, we show that PA is a potent activator of the MEK-Erk pathway in Schwann cells, and that this activation is required for PA-induced demyelination. Our results therefore reveal a surprising role for PA in Schwann cell fate determination and provide evidence of a direct link between diseases affecting lipid metabolism and abnormal Schwann cell function