Removal of TRF2, a telomere shelterin protein, recapitulates key aspects of telomere attrition including the DNA-damage response and cell-cycle arrest [1]. Distinct from the response of proliferating cells to loss of TRF2 [2, 3], in rodent noncycling cells, TRF2 inhibition promotes differentiation and growth [4, 5]. However, the mechanism that couples telomere gene-silencing features [6-8] to differentiation programs has yet to be elucidated. Here we describe an extratelomeric function of TRF2 in the regulation of neuronal genes mediated by the interaction of TRF2 with repressor element 1-silencing transcription factor (REST), a master repressor of gene networks devoted to neuronal functions [9-12]. TRF2-REST complexes are readily detected by coimmunoprecipitation assays and are localized to aggregated PML-nuclear bodies in undifferentiated pluripotent human NTera2 stem cells. Inhibition of TRF2, either by a dominant-negative mutant or by RNA interference, dissociates TRF2-REST complexes resulting in ubiquitin-proteasomal degradation of REST. Consequentially, REST-targeted neural genes (L1CAM, beta3-tubulin, synaptophysin, and others) are derepressed, resulting in acquisition of neuronal phenotypes. Notably, selective damage to telomeres without affecting TRF2 levels causes neither REST degradation nor cell differentiation. Thus, in addition to protecting telomeres, TRF2 possesses a novel role in stabilization of REST thereby controlling neural tumor and stem cell fate.