Abstract Schwann cell tumors are the most common cancers of the peripheral nervous system and can arise sporadically or in patients with neurofibromatosis type-1 (NF-1) or type-2 (NF-2). NF-1 is caused by loss of NF1, a negative regulator of Ras signaling. NF-2 is caused by loss of NF2, a pleiotropic tumor suppressor that inhibits PAK signaling. Functional interactions between the NF1 and NF2 tumor suppressors and broader mechanisms underlying malignant transformation of the Schwann lineage are unclear. Here, we integrate DNA methylation profiling, whole exome sequencing, bulk and single-cell RNA sequencing, biochemistry, and pharmacology across human samples, patient-derived cell lines, and mouse xenografts to identify cellular de-differentiation mechanisms driving malignant transformation and treatment resistance in Schwann cell tumors. Our data show molecular groups of Schwann cell tumors are distinguished by de-differentiation trajectories that drive resistance to MEK inhibition, the only approved molecular therapy for patients with NF-1. Functional genomic screening for mediators of MEK inhibitor responses in NF1-deficient tumor cells reveals NF2 loss and PAK activation underlie Schwann cell tumor de-differentiation and MEK inhibitor resistance. In support of these findings, we identify a group of de-differentiated Schwann cell tumors with concurrent loss of NF1 and NF2, and find combination molecular therapy inhibiting MEK and PAK is an effective treatment for de-differentiated Schwann cell tumor xenografts. In sum, we elucidate a paradigm of de-differentiation driving malignant transformation and treatment resistance, uncovering a functional link between the NF1 and NF2 tumor suppressors that sheds light on a novel therapeutic vulnerability.