Cholinergic nuclei in the basal forebrain supply the cerebral cortex with acetylcholine (ACh). Depletion of cholinergic fibers following basal forebrain lesion results in reduced stimulus-evoked functional activity in rat barrel cortex in response to whisker stimulation. We showed previously that exogenous delivery of nerve growth factor (NGF) to the lateral ventricle restores reduced functional activity toward normal despite persistent reductions in cortical cholinergic activity. Gene transfer of therapeutic peptides using genetically engineered cells allows for localized and biological delivery of compounds to the CNS, circumventing systemic administration or repetitive invasive surgery. In this study, we grafted genetically engineered fibroblasts that secrete NGF (NGF+) into three CNS loci of rats with unilateral basal forebrain lesions, along with control fibroblasts (NGF-) that did not secrete NGF. Only NGF+ fibroblasts grafted into ACh-depleted somatosensory cortex resulted in improvement of functional activity following cholinergic depletion. NGF+ fibroblast transplants into the lateral ventricle or basal forebrain did not improve functional activity nor did NGF- fibroblasts in any site. Similar to our previous experiments using intraventricular NGF injections, despite improvements in functional activity, the affected barrel cortex remained depleted of acetylcholinesterase-stained fibers following insertion of NGF+ fibroblasts. These data support the idea that NGF can act directly on the cerebral cortex following reductions in cholinergic innervation. The mechanism of NGF action is elusive, however, since the presence of its high-affinity receptor, trkA, in the cerebral cortex is controversial.