Telomere repeat-binding factor 2 (TRF2) is critical for telomere integrity in dividing stem and somatic cells, but its role in postmitotic neurons is unknown. Apart from protecting telomeres, nuclear TRF2 interacts with the master neuronal gene-silencer repressor element 1-silencing transcription factor (REST), and disruption of this interaction induces neuronal differentiation. Here we report a developmental switch from the expression of TRF2 in proliferating neural progenitor cells to expression of a unique short nontelomeric isoform of TRF2 (TRF2-S) as neurons establish a fully differentiated state. Unlike nuclear TRF2, which enhances REST-mediated gene repression, TRF2-S is located in the cytoplasm where it sequesters REST, thereby maintaining the expression of neuronal genes, including those encoding glutamate receptors, cell adhesion, and neurofilament proteins. In neurons, TRF2-S-mediated antagonism of REST nuclear activity is greatly attenuated by either overexpression of TRF2 or administration of the excitatory amino acid kainic acid. Overexpression of TRF2-S rescues kainic acid-induced REST nuclear accumulation and its gene-silencing effects. Thus, TRF2-S acts as part of a unique developmentally regulated molecular switch that plays critical roles in the maintenance and plasticity of neurons.