Following injury to a peripheral nerve, changes in the behavior of Schwann cells help to define the subsequent microenvironment for regeneration. Such changes, however, have almost exclusively been considered in the context of Wallerian degeneration distal to an injury, where loss of axonal contact or input is thought to be critical to the changes that occur. This supposition, however, may be incorrect in the proximal stumps where axons are still in contact with their cell bodies. In this work, we studied aspects of in vivo Schwann cell behavior after injury within the microenvironment of proximal stumps of transected rat sciatic nerves, where axons are preserved. In particular we studied this microenvironment proximal to the outgrowth zone, in an area containing intact myelinated fibers and a perineurial layer, by using double immunolabelling of Schwann cell markers and 5-bromo-2'-deoxyuridine (BrdU) labeling of proliferating cells. In normal sciatic nerve, Schwann cells were differentiated, in an orderly fashion, into those associated with unmyelinated fibers that labeled with glial fibrillary acidic protein (GFAP) and those associated with myelinated fibers that could be identified by individual axons and myelin sheaths. After sciatic nerve transection, there was rapid and early expansion in the population of GFAP-labeled cells in proximal stumps that was generated in part, by de novo expression of GFAP in Schwann cells of myelinated fibers. Schwann cells from this population also underwent proliferation, indicated by progressive rises in BrdU and GFAP double labeling. Finally, this Schwann cell pool also developed the property of migration, traveling to the distal outgrowth zone, but also with lateral penetration into the perineurium and epineurium, while in intimate contact with new axons. The findings suggest that other signals, in the injured proximal nerve stumps, beyond actual loss of axons, induce 'mature' Schwann cells of myelinated axons to dedifferentiate into those that up-regulated their GFAP expression, proliferate and migrate with axons.