In peripheral nerves, Schwann cells form the myelin sheath that insulates axons and allows rapid propagation of action potentials. Although a number of regulators of Schwann cell development are known, the signaling pathways that control myelination are incompletely understood. In this study, we show that Gpr126 is essential for myelination and other aspects of peripheral nerve development in mammals. A mutation in Gpr126 causes a severe congenital hypomyelinating peripheral neuropathy in mice, and expression of differentiated Schwann cell markers, including Pou3f1, Egr2, myelin protein zero and myelin basic protein, is reduced. Ultrastructural studies of Gpr126-/- mice showed that axonal sorting by Schwann cells is delayed, Remak bundles (non-myelinating Schwann cells associated with small caliber axons) are not observed, and Schwann cells are ultimately arrested at the promyelinating stage. Additionally, ectopic perineurial fibroblasts form aberrant fascicles throughout the endoneurium of the mutant sciatic nerve. This analysis shows that Gpr126 is required for Schwann cell myelination in mammals, and defines new roles for Gpr126 in axonal sorting, formation of mature non-myelinating Schwann cells and organization of the perineurium.