abstractSchwann cells are the main glial cell type in the PNS. They develop along nerves during embryogenesis and rely on theHMGdomain containing Sox10 transcription factor for specification, lineage progression, and terminal differentiation. Sox10 deletion in immature Schwann cells caused peripheral nerve defects in mice that were not restricted to this glial cell type, although expression in the nerve and gene loss were. Formation of the perineurium as the protecting sheath was, for instance, heavily compromised. This resembled the defect observed after loss of Desert hedgehog (Dhh) in mice. Here we show that Sox10 activates Dhh expression in Schwann cells via an enhancer that is located in intron 1 of the Dhh gene. Sox10 binds this enhancer in monomeric form via several sites. Mutation of these sites abolishes both Schwann-cell-specific activity and Sox10 responsiveness in vitro and in transgenic mouse embryos. This argues that Sox10 activates Dhh expression by direct binding to the enhancer and by increasing Dhh levels promotes formation of the perineurial sheath. This represents the first mechanism for a non-cell-autonomous function of Sox10 during peripheral nerve development.text