Light and electron microscopic studies of the cut sciatic nerve in the rat showed typical neuroma formation. If the nerve was cut and the proximal segment was ligated as a whole, the neuromatous process appeared to be even more severe than that in the simply cut nerve. When the perineurium of the cut nerve was kept intact by fascicle ligation, the axonal regenerative process seemed to be altered significantly, and less neuroma formation occurred. The mechanism by which fascicle ligation limits axonal regeneration is unknown, but could involve peripheral as well as central mechanisms. Such a limitation of neuroma formation by fascicle ligation as was found in the rat might also apply to painful human neuromas.