Skeletal myogenesis is controlled by bHLH transcription factors of the MyoD family that, along with MEF-2 factors, comprise a positive feedback network that maintains the myogenic transcriptional program. Cell-cell contact between muscle precursors promotes myogenesis, but little is known of the underlying mechanisms. CDO, an Ig superfamily member, is a component of a cell surface receptor complex found at sites of cell-cell contact that positively regulates myogenesis in vitro. We report here that mice lacking CDO display delayed skeletal muscle development. Additionally, satellite cells from these mice differentiate defectively in vitro. CDO functions to activate myogenic bHLH factors via enhanced heterodimer formation, most likely by inducing hyperphosphorylation of E proteins. The Cdo gene is, in turn, a target of MyoD. The promyogenic effect of cell-cell contact is therefore linked to the activity of myogenic bHLH factors. Furthermore, the myogenic positive feedback network extends from the cell surface to the nucleus.