Olfactory ensheathing cells (OECs) or Schwann cells were transplanted into the transected dorsal columns of the rat spinal cord to induce axonal regeneration. Electrophysiological recordings were obtained in an isolated spinal cord preparation. Without transplantation of cells, no impulse conduction was observed across the transection site; but following cell transplantation, impulse conduction was observed for over a centimeter beyond the lesion. Cell labelling indicated that the regenerated axons were derived from the appropriate neuronal source, and that donor cells migrated into the denervated host tract. As reported in previous studies, the number of regenerated axons was limited. Conduction velocity measurements and morphology indicated that the regenerated axons were myelinated, but conducted faster and had larger axon areas than normal axons. These results indicate that the regenerated spinal cord axons induced by cell transplantation provide a quantitatively limited but rapidly conducting new pathway across the transection site.