Tumor necrosis factor-α-converting enzyme (TACE; also known as ADAM17) is a proteolytic sheddase that is responsible for the cleavage of several membrane-bound molecules. We report that TACE cleaves neuregulin-1 (NRG1) type III in the epidermal growth factor domain, probably inactivating it (as assessed by deficient activation of the phosphatidylinositol-3-OH kinase pathway), and thereby negatively regulating peripheral nervous system (PNS) myelination. Lentivirus-mediated knockdown of TACE in vitro in dorsal root ganglia neurons accelerates the onset of myelination and results in hypermyelination. In agreement, motor neurons of conditional knockout mice lacking TACE specifically in these cells are significantly hypermyelinated, and small-caliber fibers are aberrantly myelinated. Further, reduced TACE activity rescues hypomyelination in NRG1 type III haploinsufficient mice in vivo. We also show that the inhibitory effect of TACE is neuron-autonomous, as Schwann cells lacking TACE elaborate myelin of normal thickness. Thus, TACE is a modulator of NRG1 type III activity and is a negative regulator of myelination in the PNS.