Peripheral nerves possess the capacity of self-regeneration after traumatic injury. Nevertheless, the functional outcome after peripheral-nerve regeneration is often poor, especially if the nerve injuries occur far from their targets. Aiming to optimize axon regeneration, we grafted bone-marrow-derived cells (BMDCs) into a collagen-tube nerve guide after transection of the mouse sciatic nerve. The control group received only the culture medium. Motor function was tested at 2, 4, and 6 weeks after surgery, using the sciatic functional index (SFI), and showed that functional recovery was significantly improved in animals that received the cell grafts. After 6 weeks, the mice were anesthetized, perfused transcardially, and the sciatic nerves were dissected and processed for transmission electron microscopy and light microscopy. The proximal and distal segments of the nerves were compared, to address the question of improvement in growth rate; the results revealed a maintenance and increase of nerve regeneration for both myelinated and non-myelinated fibers in distal segments of the experimental group. Also, quantitative analysis of the distal region of the regenerating nerves showed that the numbers of myelinated fibers, Schwann cells (SCs) and g-ratio were significantly increased in the experimental group compared to the control group. The transdifferentiation of BMDCs into Schwann cells was confirmed by double labeling with S100/and Hoechst staining. Our data suggest that BMDCs transplanted into a nerve guide can differentiate into SCs, and improve the growth rate of nerve fibers and motor function in a transected sciatic-nerve model.