The speed of impulse transmission is critical for optimal neural circuit function, but it is unclear how the appropriate conduction velocity is established in individual axons. The velocity of impulse transmission is influenced by the thickness of the myelin sheath and the morphology of electrogenic nodes of Ranvier along axons. Here we show that myelin thickness and nodal gap length are reversibly altered by astrocytes, glial cells that contact nodes of Ranvier. Thrombin-dependent proteolysis of a cell adhesion molecule that attaches myelin to the axon (neurofascin 155) is inhibited by vesicular release of thrombin protease inhibitors from perinodal astrocytes. Transgenic mice expressing a dominant-negative fragment of VAMP2 in astrocytes, to reduce exocytosis by 50%, exhibited detachment of adjacent paranodal loops of myelin from the axon, increased nodal gap length, and thinning of the myelin sheath in the optic nerve. These morphological changes alter the passive cable properties of axons to reduce conduction velocity and spike-time arrival in the CNS in parallel with a decrease in visual acuity. All effects were reversed by the thrombin inhibitor Fondaparinux. Similar results were obtained by viral transfection of tetanus toxin into astrocytes of rat corpus callosum. Previously, it was unknown how the myelin sheath could be thinned and the functions of perinodal astrocytes were not well understood. These findings describe a form of nervous system plasticity in which myelin structure and conduction velocity are adjusted by astrocytes. The thrombin-dependent cleavage of neurofascin 155 may also have relevance to myelin disruption and repair.