Neurofibromatosis type 1 (Nf1) mutation predisposes to benign peripheral nerve (glial) tumors called neurofibromas. The point(s) in development when Nf1 loss promotes neurofibroma formation are unknown. We show that inactivation of Nf1 in the glial lineage in vitro at embryonic day 12.5 + 1, but not earlier (neural crest) or later (mature Schwann cell), results in colony-forming cells capable of multilineage differentiation. In vivo, inactivation of Nf1 using a DhhCre driver beginning at E12.5 elicits plexiform neurofibromas, dermal neurofibromas, and pigmentation. Tumor Schwann cells uniquely show biallelic Nf1 inactivation. Peripheral nerve and tumors contain transiently proliferating Schwann cells that lose axonal contact, providing insight into early neurofibroma formation. We suggest that timing of Nf1 mutation is critical for neurofibroma formation.