A central question in developmental biology is how pluripotent cells differentiate to diverse cell types. It is well accepted that gradients of microenvironmental signals are determinants in cellular differentiation (4, 24). However, the molecular mechanism(s) by which pluripotent cells recognize these gradients of microenvironmental signals and transduce this information to the nucleus to activate specific gene expression and cell fate determination is incompletely understood. Neural crest (NC) cells are ideal for the study of cell lineage segregation mechanisms, since they differentiate to both neuronal cell types, i.e., sympathoadrenal (SA) and sensory neurons, and nonneuronal cell types, i.e., melanocytes and glia (39). NC cells are a transient, embryonic, stem-cell-like population located at the crest of the closing neural tube which migrate along defined routes within the developing embryo, giving rise to diverse cell types (5, 11, 22, 38). Under the instructive influence of microenvironmental signals secreted by tissues in proximity to their migratory path, NC cells from the trunk region of the neural tube differentiate to sympathetic and sensory neurons, adrenal medullary cells, glia, and melanocytes (28). Extracellular signaling molecules that have been implicated to date in NC lineage segregation include the Wnt proteins (19, 20, 35), bone morphogenetic proteins (BMP2, -4, -7) (53, 65, 66, 67), transforming growth factors β1 to β3 (59), and glial growth factor 2 (60). Known mechanistic aspects of NC lineage segregation include the instructive role of BMPs in SA lineage development (56, 59) in mediating transcriptional induction of proneural transcription factors Ash1 and phox2a/2b (43, 61). Neuregulin2 (glial growth factor 2) also acts instructively in glial differentiation of rat neural crest stem cells (NCSCs) by suppressing neuronal differentiation and Ash1 expression (60) by a mechanism not yet understood. Regarding melanocyte development (reviewed in reference 27), the melanocyte determination transcription factor Mitf (51, 63) is transcriptionally regulated by Sox10 (52), Pax3 (35, 70), Lef1/TCF (64), and CREB (8). However, the extracellular instructive signal(s), the signaling cascade(s), and the transcription factor(s) initiating Mitf expression and melanogenesis in the developing embryo are unknown. Many studies support the notion that cyclic AMP (cAMP) signaling is an important regulator of NC cell development, although the extracellular ligands activating cAMP signaling during NC cell development remain to be defined. Specifically, Maxwell and Forbes (48) reported that increased cAMP levels inhibited adrenergic neuron development while increasing the number of melanocytes. Lo et al. (42) have demonstrated that in murine NCSCs overexpression of Phox2a requires activation of cAMP signaling for SA cell development. Recent studies (25) also reported that in avian NC cultures increasing cAMP levels result in the augmentation of the melanocyte population and the concomitant reduction of the neuronal population. Furthermore, in our earlier studies we have investigated how cAMP signaling integrates with BMP2 signaling in NC cell development. Specifically, we have demonstrated that low-level activation of cAMP signaling synergizes with BMP2 in SA (neuronal) cell development, whereas high-level activation of cAMP signaling suppresses BMP2-induced SA cell development (9). Accordingly, these in vitro studies suggest that gradients of microenvironmental signals activating the cAMP pathway to differing extents determine NC lineage segregation in vivo. Since the level of cAMP pathway activation is an instructive but differential signal in NC cell differentiation (9), we investigated the molecular mechanism by which high-level activation of cAMP signaling interfaces with BMP2 signaling, suppressing BMP2-induced SA cell development. We demonstrate that high-level activation of cAMP signaling promotes protein kinase A (PKA)-dependent Rap1 and B-Raf activation and sustained ERK1/2 activation. In turn, activated ERK1/2 mediates the cytoplasmic localization of phosphorylated Smad1, the transcriptional effector of BMP2, as it was shown to occur in response to epidermal growth factor (EGF) (36). This cytoplasmic localization of pSmad1 terminates Ash1 transcription and suppresses SA cell development. Interestingly, under these conditions, a concurrent activation of CREB initiates Mitf transcription, thus promoting the development of the melanocytic lineage. We conclude that the cAMP signaling network plays a dual role in NC cell differentiation, antagonizing BMP2-induced SA cell development and concurrently promoting melanogenesis. Considering that BMPs are expressed by the surface ectoderm (41, 58) at the junction of the developing epidermis and the uncommitted NC cells, the mechanism we report herein identifies the cAMP signaling network as a likely, physiologically relevant, instructive mechanism in melanogenesis.