Bone morphogenetic protein (BMP) signaling inhibits the generation of oligodendroglia and enhances generation of astrocytes by neural progenitor cells both in vitro and in vivo. This study examined the mechanisms underlying the effects of BMP signaling on glial lineage commitment. Treatment of cultured neural progenitor cells with BMP4 induced expression of all four members of the inhibitor of differentiation (ID) family of helix-loop-helix transcriptional inhibitors and blocked oligodendrocyte (OL) lineage commitment. Overexpression of Id4 or Id2 but not Id1 or Id3 in cultured progenitor cells reproduced both the inhibitory effects of BMP4 treatment on OL lineage commitment and the stimulatory effects on astrogliogenesis. Conversely, decreasing the levels of Id4 mRNA by RNA interference enhanced OL differentiation and inhibited the effects of BMP4 on glial lineage commitment. This suggests that induction of Id4 expression mediates effects of BMP signaling. Bacterial two-hybrid and co-immunoprecipitation studies demonstrated that ID4, and to a lesser extent ID2, complexed with the basic-helix-loop-helix transcription (bHLH) factors OLIG1 and OLIG2, which are required for the generation of OLs. By contrast, ID1 and ID3 did not complex with the OLIG proteins. In addition, the OLIG and ID proteins both interacted with the E2A proteins E12 and E47. Further, exposure of cultured progenitor cells to BMP4 changed the intracellular localization of OLIG1 and OLIG2 from a predominantly nuclear to a predominantly cytoplasmic localization. These observations suggest that the induction of ID4 and ID2, and their sequestration of both OLIG proteins and E2A proteins mediate the inhibitory effects of BMP signaling on OL lineage commitment and contribute to the generation of astrocytes.