Nerve damage can cause chronic, debilitating problems including loss of motor control and paresthesia, and generates maladaptive neuroplasticity as central networks attempt to compensate for the loss of peripheral connectivity. However, it remains unclear if this is a critical feature responsible for the expression of symptoms. Here, we use brief bursts of closed-loop vagus nerve stimulation (CL-VNS) delivered during rehabilitation to reverse the aberrant central plasticity resulting from forelimb nerve transection. CL-VNS therapy drives extensive synaptic reorganization in central networks paralleled by improved sensorimotor recovery without any observable changes in the nerve or muscle. Depleting cortical acetylcholine blocks the plasticity-enhancing effects of CL-VNS and consequently eliminates recovery, indicating a critical role for brain circuits in recovery. These findings demonstrate that manipulations to enhance central plasticity can improve sensorimotor recovery and define CL-VNS as a readily translatable therapy to restore function after nerve damage.