The use of bone marrow-derived mesenchymal stem cells (MSCs) in nerve tissue engineering leads to an improved functional outcome of peripheral nerve repair. Schwann cells (SCs) are primary structural and functional cells in peripheral nervous system and play a crucial role in peripheral nerve regeneration. We hypothesize that MSCs promote peripheral nerve regeneration not only via their direct release of neurotrophic factors, but through indirect modulation of cellular behaviors of SCs. To test this hypothesis we investigated the influences of MSCs on proliferation of and neurotrophic factor expression by SCs using an in vitro co-culture model and an in vivo system of rat sciatic nerve regeneration. The data from cell viability assay and flow cytometry, bromodeoxyuridine/Hoechst 33342 double staining, immunocyto/histochemistry, RT-PCR and quantitative real-time RT-PCR, as well as Western blot analysis collectively confirmed the effects of MSCs on the biological characteristics of SCs, especially during the period of peripheral nerve regeneration. Our results help to elucidate the mechanisms by which MSCs function as a cell therapy agent in peripheral nerve repair.