Experimentally, peripheral nerve repair can be enhanced by Schwann cell transplantation but the clinical application is limited by donor site morbidity and the inability to generate a sufficient number of cells quickly. We have investigated whether adult stem cells, isolated from adipose tissue, can be differentiated into functional Schwann cells. Rat visceral fat was enzymatically digested to yield rapidly proliferating fibroblast-like cells, a proportion of which expressed the mesenchymal stem cell marker, stro-1, and nestin, a neural progenitor protein. Cells treated with a mixture of glial growth factors (GGF-2, bFGF, PDGF and forskolin) adopted a spindle-like morphology similar to Schwann cells. Immunocytochemical staining and western blotting indicated that the treated cells expressed the glial markers, GFAP, S100 and p75, indicative of differentiation. When co-cultured with NG108-15 motor neuron-like cells, the differentiated stem cells enhanced the number of NG108-15 cells expressing neurites, the number of neurites per cell and the mean length of the longest neurite extended. Schwann cells evoked a similar response whilst undifferentiated stem cells had no effect. These results indicate adipose tissue contains a pool of regenerative stem cells which can be differentiated to a Schwann cell phenotype and may be of benefit for treatment of peripheral nerve injuries.