The timing of oligodendrocyte differentiation is thought to depend on an intrinsic clock in oligodendrocyte precursor cells that counts time or cell divisions and limits precursor cell proliferation. We show here that this clock mechanism can be separated into a counting component and an effector component that stops cell proliferation: whereas the counting mechanism is driven by mitogens that activate cell-surface receptors, the effector mechanism depends on hydrophobic signals that activate intracellular receptors, such as thyroid hormones, glucocorticoids and retinoic acid. When purified oligodendrocyte precursor cells are cultured at clonal density in serum-free medium in the presence of mitogens but in the absence of these hydrophobic signals, the cells divide indefinitely and do not differentiate into postmitotic oligodendrocytes. In the absence of mitogens, the precursor cells stop dividing and differentiate prematurely into oligodendrocytes even in the absence of these hydrophobic signals, indicating that these signals are not required for differentiation. The levels of these signals in vivo may normally regulate the timing of oligodendrocyte differentiation, as the maximum number of precursor cell divisions in culture depends on the concentration of such signals and injections of thyroid hormone into newborn rats accelerates oligodendrocyte development. As thyroid hormone, glucocorticoids and retinoic acid have been shown to promote the differentiation of many types of vertebrate cells, it is possible that they help coordinate the timing of differentiation by signalling clocks in precursor cells throughout a developing animal.