Neurons undergo a complex differentiation process that endows them with the ability to generate electrical signals and to transmit them via synaptic connections. There is increasing evidence that glial cells regulate specific aspects of neuronal differentiation including synapse formation, but the underlying mechanisms are not well understood. Here, we show how glia-derived cholesterol promotes the development of synapses in microcultures of highly purified retinal ganglion cells (RGCs) from postnatal rats. We identify dendrite differentiation as rate limiting step for glia-induced synaptogenesis and we show that this process requires cholesterol. Furthermore, we show that cholesterol enhances directly presynaptic differentiation and that it is essential for continuous synaptogenesis and for the stability of evoked transmitter release. These results reveal new roles of cholesterol in neuronal differentiation and underline the importance of neuron-glia interactions during brain development.