The Nogo/Nogo66 receptor signaling pathway has been characterized as inhibitory for axon growth, regeneration, and structural plasticity in the adult mammalian central nervous system. Nogo and its receptor are highly expressed when axon growth is abundant, however, the function of this pathway in neural development is unclear. We have characterized zebrafish Nogo pathway members and examined their role in the developing nervous system using anti-sense morpholinos that inhibit protein synthesis. Depletion of the Nogo66 receptor or a Nogo isoform causes truncated outgrowth of peripheral nervous system (PNS) axons of the head and lateral line. PNS nerves also show increased defasciculation and numerous guidance defects, including axons invading regions along the body flank that are normally avoided. We propose that localized Nogo expression defines inhibitory territories that through repulsion restrict axon growth to permissive regions.