We have previously reported that hair follicles contain multipotent stem cells which express nestin. The nestin-expressing cells form the hair follicle sensory nerve. In vitro, the nestin-expressing hair follicle cells can differentiate into neurons, Schwann cells, and other cell types. In the present study, the sciatic nerve was excised from transgenic mice in which the nestin promoter drives green fluorescent protein (ND-GFP mice). The ND-GFP cells of the sciatic nerve were also found to be multipotent as the ND-GFP cells in the hair follicle. When the ND-GFP cells in the mouse sciatic nerve cultured on Gelfoam® and were imaged by confocal microscopy, they were observed forming fibers extending the nerve. The fibers consisted of ND-GFP-expressing spindle cells, which co-expressed the neuron marker β-III tubulin, the immature Schwann-cell marker p75(NTR) and TrkB which is associated with neurons. The fibers also contain nestin-negative spherical cells expressing GFAP, a Schwann-cell marker. The β-III tubulin-positive fibers had growth cones on their tips expressing F-actin, indicating they are growing axons. When the sciatic nerve from mice ubiquitously expressing red fluorescent protein (RFP) was co-cultured on Gelfoam® with the sciatic nerve from ND-GFP transgenic mice, the interaction of nerves was observed. Proliferating nestin-expressing cells in the injured sciatic nerve were also observed in vivo. Nestin-expressing cells were also observed in posterior nerves but not in the spinal cord itself, when placed in 3-D Gelfoam® culture. The results of the present report suggest a critical function of nestin-expressing cells in peripheral nerve growth and regeneration.