Ectomesenchymal stem cells (EMSCs) originate from the cranial neural crest. They are a potential source of neuronal and Schwann cells (SCs) of the peripheral nervous system (PNS) during embryonic development. The third passage of EMSCs enzymatically isolated from the mandibular processes of Sprague-Dawley rats were cultured in forskolin and bovine pituitary extract for 6 days to generate functional Schwann cell phenotypes. Next, 10-mm defects in the sciatic nerves were bridged with an autograft, tissue-engineered nerve filled with differentiated cells in collagen, or a PLGA conduit alone in 18 rats, and the nerve defects of another four rats were left untreated. The regenerated nerves were evaluated by the sciatic functional index (SFI) monthly and by histological analysis 4 months after grafting. The recovery index of the sciatic nerve improved significantly in the autograft and tissue-engineered nerve groups, both of which were superior to the PLGA group. In animals transplanted with the EMSCs, there was greater regeneration than with conduit alone during the same period of implantation. These results show that when EMSCs are transplanted to a peripheral nerve defect they differentiate into supportive cells that contribute to the promotion of axonal regeneration.