Protein zero (P0) and peripheral myelin protein 22 (PMP22) are most prominently expressed by myelinating Schwann cells as components of compact myelin of the peripheral nervous system (PNS), and mutants affecting P0 and PMP22 show severe defects in myelination. Recent expression studies suggest a role of P0 and PMP22 not only in myelination but also during embryonic development. Here we show that, in dorsal root ganglia (DRG) and differentiated neural crest cultures, P0 is expressed in the glial lineage whereas PMP22 is also detectable in neurons. In addition, however, P0 and PMP22 are both expressed in a multipotent cell type isolated from early DRG. Like neural crest stem cells (NCSCs), this P0/PMP22-positive cell gives rise to glia, neurons and smooth-muscle-like cells in response to instructive extracellular cues. In cultures of differentiating neural crest, a similar multipotent cell type can be identified in which expression of P0 and PMP22 precedes the appearance of neural differentiation markers. Intriguingly, this P0/PMP22-positive progenitor exhibits fate restrictions dependent on the cellular context in which it is exposed to environmental signals. While single P0/PMP22-positive progenitor cells can generate smooth muscle in response to factors of the TGF-(beta) family, communities of P0/PMP22-positive cells interpret TGF-(beta) factors differently and produce neurons or undergo increased cell death instead of generating smooth-muscle-like cells. Our data are consistent with a model in which cellular association of postmigratory multipotent progenitors might be involved in the suppression of a non-neural fate in forming peripheral ganglia.