The myelinating and nonmyelinating Schwann cells in peripheral nerves are derived from the neural crest, which is a transient and multipotent embryonic structure that also generates the other main glial subtypes of the peripheral nervous system (PNS). Schwann cell development occurs through a series of transitional embryonic and postnatal phases, which are tightly regulated by a number of signals. During the early embryonic phases, neural crest cells are specified to give rise to Schwann cell precursors, which represent the first transitional stage in the Schwann cell lineage, and these then generate the immature Schwann cells. At birth, the immature Schwann cells differentiate into either the myelinating or nonmyelinating Schwann cells that populate the mature nerve trunks. In this review, we will discuss the biology of the transitional stages in embryonic and early postnatal Schwann cell development, including the phenotypic differences between them and the recently identified signaling pathways, which control their differentiation and maintenance. In addition, the role and importance of the microenvironment in which glial differentiation takes place will be discussed.