Increased production of neurotrophic factors (NTFs) is one of the key responses seen following peripheral nerve injury, making them an attractive choice for pro-regenerative gene therapies. However, the downside of over-expression of certain NTFs, including glial cell line-derived neurotrophic factor (GDNF), was earlier found to be the trapping and misdirection of regenerating axons, the so-called 'candy-store' effect. We report a proof-of-principle study on the application of conditional GDNF expression system in injured peripheral nerve. We engineered Schwann cells (SCs) using dendrimers or lentiviral transduction with the vector providing doxycycline-regulated GDNF expression. Injection of GDNF-modified cells into the injured peripheral nerve followed by time-restricted administration of doxycycline demonstrated that GDNF expression in SCs can also be controlled locally in the peripheral nerves of the experimental animals. Cell-based GDNF therapy was shown to increase the extent of axonal regeneration, while controlled deactivation of GDNF effectively prevented trapping of regenerating axons in GDNF-enriched areas, and was associated with improved functional recovery.