The effects of denervated muscle and Schwann cells on collateral sprouting from peripheral nerve were studied in the peroneal and tibial nerves of 48 Sprague-Dawley rats. Three groups were prepared. In group MSW (muscle-Schwann cell-window), the peroneal nerves were transected 3 mm below the sciatic bifurcation. The proximal stumps were sealed in a blocked tube to prevent regeneration and the distal stumps were implanted into denervated muscle cells that were wrapped around the ipsilateral tibial nerve, which had a window of perineurium resected. Schwann cells from the ipsilateral sural nerve were implanted into the muscle. Group MS (muscle-Schwann cell) was similar to group MSW, except that the tibial nerve perineurium was kept intact. In group MW (muscle-window), the muscle was prepared without Schwann cells and the tibial nerve perineurium was windowed. S-100 immunostain was used to identify the Schwann cells surviving 1 week after transplantation. After 16 weeks of regeneration, horseradish peroxidase tracer was used to label motor neurons and sensory neurons reinnervating the peroneal nerve. Myelinated axons of the reinnervated peroneal nerves were quantified with the Bioquant OS/2 computer system (R&M Biometrics, Nashville, TN). A mean of 169 motor neurons in group MSW, 64 in group MW, and 26 in group MS reinnervated the peroneal nerve. In the dorsal root ganglion, the mean number of labeled sensory neurons was 1,283 in group MSW, 947 in group MS, and 615 in group MW. The mean number of myelinated axons in the reinnervated peroneal nerve was 1,659 in group MSW, 359 in group MS, and 348 in group MW. Reinnervated anterolateral compartment muscles in group MSW were significantly heavier than those in group MS or MW. This study demonstrates that the transplantation of denervated muscle and Schwann cells promotes motor and sensory nerve collateral sprouting through a perineurial window.