Members of the arenavirus family, famous for their hemorrhagic syndromes, cause distinct neurological disorders; however, cellular and molecular targets as well as pathogenesis of peripheral nervous system disorders associated with these viruses are unknown. Using noncytolytic lymphocytic choriomeningitis virus, the prototype arenavirus, and pseudotyped Lassa fever virus, we showed that the Schwann cells, but not the neurons, were preferentially targeted and harbored the virus. This permissiveness was caused by the viral glycoprotein usage of its receptor alpha-dystroglycan, which was highly abundant on Schwann cell membranes. Persistent lymphocytic choriomeningitis virus infection rendered immature Schwann cells defective or incapable of forming compact myelin sheathes when they differentiated to myelinating phenotype in an in vitro differentiation model of Schwann cells. Persistent infection did not cause Schwann cell apoptosis or cytopathic effect. Defects in myelination coincided with the down-regulation of dystroglycan expression and disruption of the laminin-2 organization and basal lamina assembly on Schwann cell-axon units. The data provide evidence for a selective perturbation of laminin-2-laminin-2 receptor communication pathway in the peripheral nervous system by a nonlytic virus and the resulting myelin defects, which may partly contribute to neurological abnormalities associated with arenaviral infection.