The formation of myelin in the central nervous system is a multi-step process that involves coordinated cell–cell interactions and dramatic changes in plasma membrane architecture. First, oligodendrocytes send our numerous highly ramified processes to sample the axonal environment and decide which axon(s) to select for myelination. After this decision is made and individual axon to oligodendrocyte contact has been established, the exploratory process of the oligodendrocyte is converted into a flat sheath that spreads and winds along and around its associated axon to generate a multilayered membrane stack. By compaction of the opposing extracellular layers of membrane and extrusion of almost all cytoplasm from the intracellular domain of the sheath, the characteristic membrane-rich multi-lamellar structure of myelin is formed. Here we highlight recent advances in identifying biophysical and signalling based mechanisms that are involved in axonal selection and myelin sheath generation by oligodendrocytes. A thorough understanding of the mechanisms underlying these events is a prerequisite for the design of novel myelin repair strategies in demyelinating and dysmyelinating diseases.