Although traditionally recognized for maintaining extracellular matrix integrity during morphogenesis, the function of matrix metallo-proteinases (MMPs) and their inhibitors, the tissue inhibitors of metalloproteinases (TIMPs), in the mature nervous system is essentially unknown. Here, we report that TIMP-2 induces pheochromocytoma PC12 cell-cycle arrest via regulation of cell-cycle regulatory proteins, resulting in differentiation and neurite outgrowth. TIMP-2 decreases cyclins B and D expression and increases p21Cip expression. Furthermore, TIMP-2 promotes cell differentiation via activation of the cAMP/Rap1/ERK (extracellular signal-regulated kinase) pathway. Expression of dominant-negative Rap1 blocks TIMP-2-mediated neurite outgrowth. Both the cell-cycle arrest and neurite outgrowth induced by TIMP-2 was independent of MMP inhibitory activity. Consistent with the PC12 cell data, primary cultures of TIMP-2 knock-out cerebral cortical neurons exhibit significantly reduced neurite length, which is rescued by TIMP-2. These in vitro results were corroborated in vivo. TIMP-2 deletion causes a delay in neuronal differentiation, as demonstrated by the persistence of nestin-positive progenitors in the neocortical ventricular zone. The interaction of TIMP-2 with alpha3beta1 integrin in the cerebral cortex suggests that TIMP-2 promotes neuronal differentiation and maintains mitotic quiescence in an MMP-independent manner through integrin activation. The identification of molecules responsible for neuronal quiescence has significant implications for the ability of the adult brain to generate new neurons in response to injury and neurological disorders, such as Alzheimer's and Parkinson's diseases.