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Our ultimate goal of in vitro derivation of Schwann cells (SCs) from adult bone marrow stromal cells (BMSCs) is such that they may be used autologously to assist post-traumatic nerve regeneration. Existing protocols for derivation of SC-like cells from BMSCs fall short in the stability of the acquired phenotype and the functional capacity to myelinate axons. Our experiments indicated that neuro-ectodermal progenitor cells among the human hBMSCs could be selectively expanded and then induced to differentiate into SC-like cells. Co-culture of the SC-like cells with embryonic dorsal root ganglion neurons facilitated contact-mediated signaling that accomplished the switch to fate-committed SCs. Microarray analysis and in vitro myelination provided evidence that the human BMSC-derived SCs were functionally mature. This was reinforced by repair and myelination phenotypes observable in vivo with the derived SCs seeded into a nerve guide as an implant across a critical gap in a rat model of sciatic nerve injury.