Mesenchymal stem cells were isolated from the bone marrow of rats and differentiated to provide a functional substitute for slow growing Schwann cells for peripheral nerve regeneration. To assess the properties of the differentiated mesenchymal stem cell, the cells were co-cultured with dorsal root ganglia and the secretion of the neurotrophic factors and the neurite outgrowth was evaluated. The neurite outgrowth of the dorsal root ganglia neurons was enhanced in co-culture with the differentiated stem cells compared to the undifferentiated stem cells. Differentiated stem cells like Schwann cells were responsible for the stimulation of longer and branched neurites. Using enzyme-linked immunosorbant assays and blocking antibodies, we have shown that this effect is due to the release of brain derived neurotrophic factor and nerve growth factor, which were up-regulated in differentiated mesenchymal stem cells following co-culture. The relevance of the tyrosine kinase receptors was confirmed by the selective tyrosine kinase inhibitor, K252a which abolished the neurite outgrowth of the dorsal root ganglia neurons when co-cultured with the differentiated mesenchymal stem cells similar to Schwann cells. The results of the study further support the notion that mesenchymal stem cells can be differentiated and display trophic influences as those of Schwann cells.