We investigated the mechanisms by which insulin-like growth factor I (IGF-I) acts to increase the number of oligodendrocytes that develop in cultures of cells explanted from perinatal rat cerebrum. Fluorescence-activated cell sorting was used to isolate bipotential A2B5-positive oligodendrocyte-type 2 astrocyte (O-2A) progenitor cells, which were then inoculated as single cells into microculture wells containing feeder layers of X-irradiated type 1 astrocytes. Addition of 100 ng/ml IGF-I to the culture medium increased the growth rate and the ultimate size reached by the resulting clones during the 18-day experimental period. Moreover, 75-80% of the cells in the IGF-I-treated clones differentiated into galactocerebroside (GC)-positive oligodendrocytes, whereas only 25-30% became oligodendrocytes in the absence of IGF-I. IGF-I did not increase the number of type 2 astrocytes that developed in the clones. IGF-I appeared to have the greatest effect on growth and differentiation at a stage when the majority of the cells in the clones were at an intermediate stage of development, characterized by the expression of A2B5 and O4 glycolipid antigens but not GC. Analysis of the effects of IGF-I on O4-positive, GC-negative intermediate precursor cells revealed a two to fivefold increase in the number of cells that incorporated 3H-thymidine into their DNA during a 5-h pulse. Moreover, IGF-I increased the number of cell sorter-purified O4-positive cells that developed into oligodendrocytes 4-8 days later. Therefore, IGF-I acts in two different ways to promote oligodendrocyte development: It promotes proliferation of precursor cells in the O-2A lineage, and it induces precursors to become committed to develop into oligodendrocytes.