Axons undergo striking changes in their content and distribution of cell adhesion molecules (CAMs) and ion channels during myelination that underlies the switch from continuous to saltatory conduction. These changes include the removal of a large cohort of uniformly distributed CAMs that mediate initial axon-Schwann cell interactions and their replacement by a subset of CAMs that mediate domain-specific interactions of myelinated fibers. Here, using rodent models, we examine the mechanisms and significance of this removal of axonal CAMs. We show that Schwann cells just prior to myelination locally activate clathrin-mediated endocytosis (CME) in axons, thereby driving clearance of a broad array of axonal CAMs. CAMs engineered to resist endocytosis are persistently expressed along the axon and delay both PNS and CNS myelination. Thus, glia non-autonomously activate CME in axons to downregulate axonal CAMs and presumptively axo-glial adhesion. This promotes the transition from ensheathment to myelination while simultaneously sculpting the formation of axonal domains.