Glycosphingolipids (GSLs) are of fundamental importance in the nervous system. However, the molecular details associated with GSL function are largely unknown, in part because of the complexity of GSL biosynthesis in vertebrates. In Drosophila, only one major GSL biosynthetic pathway exists, controlled by the glycosyltransferase Egghead (Egh). Here we discovered that loss of Egh causes overgrowth of peripheral nerves and attraction of immune cells to the nerves. This phenotype is reminiscent of the human disorder neurofibromatosis type 1, which is characterized by disfiguring nerve sheath tumors with mast cell infiltration, increased cancer risk, and learning deficits. Neurofibromatosis type 1 is due to a reduction of the tumor suppressor neurofibromin, a negative regulator of the small GTPase Ras. Enhanced Ras signaling promotes glial growth through activation of phosphatidylinositol 3-kinase (PI3K) and its downstream kinase Akt. We find that overgrowth of peripheral nerves in egh mutants is suppressed by down-regulation of the PI3K signaling pathway by expression of either dominant-negative PI3K, the tumor suppressor PTEN, or the transcription factor FOXO in the subperineurial glia. These results show that loss of the glycosyltransferase Egh affects membrane signaling and activation of PI3K signaling in glia of the peripheral nervous system, and suggest that glycosyltransferases may suppress proliferation.