The formation of the glial sheath is essential in nervous system development to insulate and protect peripheral nerves and axons, yet the regulation of adhesion junctions in non-myelinating glia has not been clearly established. Many components of adhering junctions contain PDZ domains or are recruited by PDZ binding motifs. To identify PDZ domain proteins with roles in peripheral glial sheath formation, we carried out an RNAi screen using Drosophila melanogaster to knockdown each of the 66 predicted PDZ proteins in larvae of either sex. We identified six PDZ genes with potential roles in glial morphology, and we further characterized the role of Dlg5, a scaffolding protein with no previously known function in any glia. To further our investigation of Dlg5, we focused on cadherins and found both N-Cadherin and E-Cadherin are expressed throughout peripheral glia. Knockdown of E-Cadherin (ECad) phenocopied the loss of Dlg5 leading to gaps in the subperineurial glia and septate junctions, while only simultaneous loss of both N-Cadherins (NCad and CadN2) had the same effect. The loss of all three Cadherins enhanced these phenotypes as did loss of Dlg5 when paired with cadherin knockdown yet Dlg5 does not colocalize with Cadherins. The Hippo signaling pathway represents a common convergence point for both Dlg5 and cadherins and we found that expression of Yorkie is able to rescue the loss of Dlg5 and ECad in the SPG. This leads to a model where Dlg5 and cadherins function in the same pathway and play a role in glial membrane stabilization and septate junction formation.Significance Statement Glial ensheathment of peripheral nerves is critical to generate the insulating sheath and the blood-nerve barrier. We found that the PDZ domain protein Discs-large 5 (Dlg5) plays a key role in the developmental of the insulating glial sheath and does so in cooperation with Cadherins, both E- and N-Cadherins. Dlg5 and Cadherins converge to regulate the Hippo pathway and thus glial growth and blood-brain barrier formation.