The Gαq/phospholipase C-β (PLCβ) signaling system mediates calcium responses to a variety of hormones and neurotransmitters. Recent studies suggest that PLCβ1 expression plays a role in the differentiation of two types of cultured neuronal cells (PC12 and SK-N-SH) through a mechanism independent of Gαq. Here, we show that, similar to that observed in PC12 and SK-N-SH cells, PLCβ1 expression increases when human NT2 cells are induced to differentiate either through cytosine-β-D-arabinofuranoside or retinoic acid. Preventing this increase, abolishes differentiation, and down-regulating PLCβ1 in rat primary astrocytes causes cells to adapt an undifferentiated morphology. Surprisingly, transfecting PLCβ1 into undifferentiated PC12 or NT2 cells induces differentiation without the need for differentiating agents. Studies to uncover the underlying mechanism focused on the transcription factor early growth response 1 (Egr-1) which mediates PLCβ1 expression early in differentiation. Over-expressing PLCβ1 in HEK293 cells enhances Egr-1 expression and induces morphological changes. We show that increased levels of cytosolic PLCβ1 in undifferentiated PC12 cells disrupts the association between Egr-1 and its cytosolic binding partner (Tar RNA binding protein), promoting relocalization of Egr-1 to the nucleus, which promotes transcription of proteins needed for differentiation. These studies show a novel mechanism through which differentiation can be modulated.