Myelin membrane, which ensheaths axons, has an unusually high amount of cholesterol. Cholesterol influences membrane fluidity and assembles lipid-rich microdomains within membranes, and some studies have shown that cholesterol is important for myelination. How cholesterol influences the development and differentiation of oligodendrocytes, glial cells that make myelin, is not known nor is clear whether isoprenoids, which also are products of the cholesterol biosynthetic pathway, contribute to myelination. Through a forward genetic screen in zebrafish we discovered that mutation of hmgcs1, which encodes an enzyme necessary for isoprenoid and cholesterol synthesis, causes oligodendrocyte progenitor cells (OPCs) to migrate past their target axons and to fail to express myelin genes. Drawing on a combination of pharmacological inhibitor and rescue experiments, we provide evidence that isoprenoids and protein prenylation, but not cholesterol, are required in OPCs to halt their migration at target axons. On the other hand, cholesterol, but not isoprenoids, is necessary both for axon ensheathment and myelin gene expression. Our data reveal that different products of the cholesterol biosynthetic pathway have distinct roles in oligodendrocyte development and that they together help to coordinate directed migration, axon wrapping, and gene expression.