Morphological and physiological studies demonstrate that demyelination constitutes a significant component of the pathology in compressive spinal cord injury. In many cases of spinal cord injury, a rim of demyelinated axons surrounds a central core of hemorrhagic necrosis. This provides a pathophysiological basis for "discomplete" spinal cord injuries, characterized by apparently complete transection as judged by clinical criteria, but with neurophysiological evidence of conduction through the level of damage. Recovery of conduction in demyelinated axons may permit recovery of function, and can be mediated by several mechanisms, including remyelination by oligodendrocytes or Schwann cells. Alternatively, conduction of action potentials can occur in the absence of remyelination, but this requires plasticity of the demyelinated axon. The biophysics of conduction favors recovery of electrogenesis after demyelination of small diameter axons. This may account, in part, for the observation that functional recovery is more common after demyelination of visual, compared to spinal, axons. Restoration or modification of conduction in demyelinated fibers represents an important strategy for promoting functional recovery in spinal cord injury.