The extracellular matrix molecule tenascin is expressed within the developing peripheral nervous system, first by migrating neural crest cells and later by satellite (Schwann precursor) cells at the growing tips of peripheral nerves. Here we found that the neurite promoting activity of tenascin for sensory neurons is developmentally regulated: very young sensory ganglia of stage 23 (4 days old) embryos grew neurites on tenascin as fast as on laminin and fibronectin. The growth response of older (day 7 and 9) ganglia on laminin and fibronectin was similar to that of 4-day-old ganglia, while on tenascin neurite growth occurred only after a lag phase and at a slower rate. Neurite growth on tenascin was inhibited by antibodies to beta 1 integrin and by heparin. While tenascin promotes neurite outgrowth of peripheral neurons, we found that it does not allow satellite cell migration when it is present on the substratum, and it inhibits migration of satellite cells on fibronectin when added in soluble form. In contrast, soluble tenascin did not significantly alter the rate of neurite growth on tenascin, fibronectin or laminin substrata, although neurites were straighter and less attached. When isolated satellite cells were added to neurites grown on tenascin, they preferentially adhered to and elongated along neurite surfaces. Using patterned substrata of tenascin versus fibronectin or laminin confirmed that tenascin borders allow neurites to pass but act as barriers to migrating satellite cells. We postulate that tenascin or related molecules with dual functions in cell adhesion are important for peripheral nerve morphogenesis. Tenascin allows axonal growth, but may restrict random satellite cell migration into the fibronectin-rich mesenchyme, thereby inducing the compaction of nerve fascicles.