In this study we have transplanted a clonal olfactory bulb-ensheathing cell line into focal areas of the rat spinal cord which contain demyelinated axons but neither oligodendrocytes nor astrocytes. The cell line was created by retroviral incorporation of the temperature-sensitive Tag gene into FACS-sorted 04+ cells from 7-day-old rat pup olfactory bulb. The spinal cord lesions were obtained by injecting small volumes of ethidium bromide into the dorsal white matter of spinal cord previously exposed to 40 Grays of X-irradiation. Many of the axons were remyelinated by PO+ myelin sheaths 21 days after transplantation. Light and electron microscopy revealed cells engaging and myelinating axons in a manner highly reminiscent of Schwann cells within similar lesions. GFAP+ cells were also present within the lesion. This study provides the first in vivo evidence that olfactory bulb-ensheathing cells are able to produce peripheral-type myelin sheaths around axons of the appropriate diameter.