The combined treatment of peripheral nerve (PN) graft and fibroblast growth factor (FGF)-1 for spinal cord injury produces functional recovery, but how it affects injury events is still unknown. This project studied the effect of PN graft and FGF-1 on white matter degeneration following spinal cord injury. Rats were divided into four groups: (i) complete spinal cord transection and T8 segment removed; the remaining three groups underwent transection followed by (ii) PN grafting; (iii) supply of exogenous FGF-1; and (iv) PN grafting plus FGF-1 treatment. Chondroitin sulphate proteoglycan (CSPG) deposition, astrocytes and macrophage activation, cavity size, and calcitonin gene-related peptide and synaptophysin immunoreactivity were compared. Peripheral nerve grafting increased CSPG levels compared to transection surgery alone. This CSPG was associated with the proximity to the PN graft. FGF-1 reduced CSPG deposition in grafted animals regardless of the proximity to the graft. The CSPG reduction was accompanied by reduced GFAP expression and macrophage activation. The amount of CSPG with dissociated glycosaminoglycan did not differ between groups. FGF-1 in Schwann cell-astrocyte coculture did not reduce CSPG deposition. Furthermore, the PN graft increased the calcitonin gene-related peptide immunoreactivity and altered the distribution of synaptophysin-positive axons. Peripheral nerve graft supported sensory re-innervation and partial protection of the grey matter, but up-regulated CSPG in the graft-stump junction compared to non-grafted rats. The reduction of CSPG was caused by FGF-1-PN synergy, and did not involve dissociation of CSPG or the suppression of a general immune response.