BACE1 is an indispensable enzyme for generating β-amyloid peptides, which are excessively accumulated in brains of Alzheimer’s patients. However, BACE1 is also required for proper myelination of peripheral nerves, as BACE1-null mice display hypomyelination. In order to determine the precise effects of BACE1 on myelination, here we have uncovered a role of BACE1 in the control of Schwann cell proliferation during development. We demonstrate that BACE1 regulates the cleavage of Jagged-1 and Delta-1, two membrane-bound ligands of Notch. BACE1 deficiency induces elevated Jag-Notch signaling activity, which in turn facilitates proliferation of Schwann cells. This increase in proliferation leads to shortened internodes and decreased Schmidt–Lanterman incisures. Functionally, evoked compound action potentials in BACE1-null nerves were significantly smaller and slower, with a clear decrease in excitability. BACE1-null nerves failed to effectively use lactate as an alternative energy source under conditions of increased physiological activity. Correlatively, BACE1-null mice showed reduced performance on rotarod tests. Collectively, our data suggest that BACE1 deficiency enhances proliferation of Schwann cell due to the elevated Jag1/Delta1-Notch signaling, but fails to myelinate axons efficiently due to impaired the neuregulin1-ErbB signaling, which has been documented.