Bone marrow-derived stem cells enhance the rate of regeneration and clinical improvement in nerve injury, spinal cord injury and brain infarction. Recent experiments in rat spinal cord demyelination showed that remyelination was specific to intravenous delivery of the bone marrow-derived mononuclear cell (BM-MNC) fraction, although the specific role of this fraction in peripheral nerve regeneration has not been examined. Therefore we evaluated the role of BM-MNCs in peripheral nerve regeneration in the rat sciatic nerve transection model. After anesthesia, the right sciatic nerve of 20 adult-male Wistar rats was transected under an operating microscope. In the test group, the cut ends of the nerve were approximated with two epineural microsutures, the gap was filled with rat BM-MNCs and the approximated nerve ends were covered with fibrin glue. In the control group, the transected nerve ends were repaired with two epineural microsutures and fibrin sealant only. Histological assessment of the nerve was performed 30 days and 60 days after the operation and regenerative changes were compared between the two groups. The recovery after nerve anastamosis was far better in the test group at both 30 days and 60 days. There was a statistically significant difference in axonal regeneration, remyelination and myelin thickness at sites 5 mm and 10 mm from the site of repair of the nerve. Schwann cell proliferation and degenerative changes were more prevalent in the controls. This study demonstrates that local delivery of BM-MNCs (which can be isolated easily from bone marrow aspirates) into injured peripheral nerve increases the rate and degree of nerve regeneration. The present study highlights the role of BM-MNCs in peripheral nerve regeneration.