Bone marrow stromal cells (MSC) are multipotent stem cells that differentiate into cells of the mesodermal lineage. Although adult, their differentiation potential is remarkable, and they are able to transdifferentiate. Transdifferentiated cultivated rat MSC (tMSC) changed morphologically into cells resembling typical spindle-shaped Schwann cells (SC) with enhanced expression of LNGF receptor, Krox-20, CD104 and S100beta protein and decreased expression of bone morphogenetic protein receptor-1A compared to untreated rat MSC (rMSC). Transdifferentiation was reversible and repeatable. To evaluate the myelinating capacity, rMSC, tMSC, or SC cultured from male rats were grafted into an autologous muscle conduit bridging a 2-cm gap in the female rat sciatic nerve. The presence of the male-specific SRY gene (as revealed by PCR analysis) and S100 immunoreactivity of pre-labeled tMSC confirmed the presence of the implanted cells in the grafts. Three weeks after grafting, an appropriate regeneration was noted in the SC and in the tMSC groups, while regeneration in the rMSC group and in the control group without any cells was impaired. In contrast to SC, in some cases, single tMSC were able to myelinate more than one axon. Our findings demonstrate that it may be possible to differentiate MSC into therapeutically useful cells for clinical applications.