Neurofibromatosis type 2 is an autosomal dominant disease characterized by the formation of schwannomas and other peripheral neuropathies. The nf2 gene encodes the protein Schwannomin, or merlin. Schwannomin (Sch) is a membrane-cytoskeletal linking protein that suppresses cell proliferation at high cell density and modulates cell shape. Sch's tumor suppressive activity is regulated by its localization, conformation, and phosphorylation at serine 518 (S518). Sch's localization is dependent on binding the scaffold protein, paxillin. Phosphorylation of Sch at S518 regulates its conformation and tumor suppressor function. In a negative feedback loop, unphosphorylated Sch restricts cell proliferation downstream of Rac and p21-activated kinase (Pak), whereas Pak-induced phosphorylation inactivates Sch's ability to inhibit Pak and cell proliferation. Little is known about the function of the phosphorylated form of Sch, or the molecular mechanisms leading to its phosphorylation. Here we demonstrate that Sch-S518 phosphorylation is dependent on paxillin-binding and plasma membrane localization in SCs. Phosphorylation of Sch at the plasma membrane is mediated by Cdc42-Pak and results in altered SC morphology and polarity. Moreover, we have identified two extracellular stimuli that trigger Sch-S518 phosphorylation; these are neuregulin (NRG) and laminin, two potent activators of SC proliferation and myelination. NRG promotes Sch-S518 phosphorylation downstream of ErbB2/ErbB3 through PKA, whereas laminin-1 stimulation of β1 integrin promotes Pak- dependent phosphorylation of Sch-S518. Additionally, we find that Sch promotes process formation and elongation in primary and myelinating SCs, independent of Sch S518 phosphorylation. However, Sch phosphorylation was found to influence SC differentiation, as expression of an unphosphorylatable variant, Sch-S518A, facilitated SC myelination, whereas expression of a phospho-mimicking variant, Sch-S518D, reduced the SC's ability to myelinate. Together, these findings have identified receptor-mediated and paxillin-dependent pathways that regulate phosphorylation and inactivation of Sch's tumor suppressor function. Additionally, these results have elucidated novel normal functions for Sch during peripheral nerve development and myelination, and identify novel therapeutic targets for treatment of NF2 and other peripheral neuropathies.