The use of bioresorbable conduits supplemented with Schwann cells (SCs) is a promising tissue engineering technique to replace nerve grafting. Alginate hydrogel (AH), as a SC tissue engineering matrix, has many advantages over previously used matrices but has not been evaluated for this purpose. In this study, the viability and proliferation of SCs together with SC function in AH was evaluated in vitro. AlamarBlue cell assay was used to monitor the viability of SCs in AH and compared to SC viability in collagen gel, fibrin glue, hyaluronic acid, Matrigel, and standard culture plate over 5 days in culture. The results showed that the viability and growth of SCs in different matrices over the culture period did not significantly differ to culture plate culture. SC function when suspended in AH was monitored using chick embryo dorsal root ganglia (CDRG) growth assay. Growth of CDRG in AH with or without SCs was compared to CDRG growth without AH matrix. After 3 days in culture, the mean length of neurite sprouting was measured. The results showed that there was neurite growth in AH but was reduced to 43% of control. The neurite growth in AH was, however, enhanced by 170% when SCs were suspended in the gel. In conclusion, AH supported SC viability and function in vitro and may be useful in peripheral nerve tissue engineering in reconstructive procedures.