Bone marrow mesenchymal stem cells can trans-differentiate into neuronal phenotypes. We examined the differentiation of marrow stromal cells (MSCs) in culture and during nerve regeneration. MSCs from adult rats were exposed to glial growth factor (GGF) to stimulate glial differentiation. Subsequently differentiated MSCs were retrovirally labelled with green fluorescent protein and transplanted into 1 cm nerve conduits in the rat sciatic nerve. Fifteen days post-operatively the conduits were examined for axonal and Schwann cell regeneration and MSC integration. In vitro, MSCs exposed to GGF expressed S100 and glial fibrillary acidic protein. Following transplantation, MSCs maintained S100 expression and enhanced nerve regeneration, with significant Schwann cell regeneration compared to control (2.7±0.21 vs. 2.05±.21 mm; P<0.05). MSCs not exposed to GGF prior to transplantation expressed S100 in vivo indicating glial differentiation in response to local cytokines and growth factors.