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Emerging evidence suggests that intracellular molecules and organelles transfer between cells during embryonic development, tissue homeostasis and disease. We and others recently showed that transplanted and host photoreceptors engage in bidirectional transfer of intracellular material in the recipient retina, a process termed material transfer (MT). We used cell transplantation, advanced tissue imaging approaches, genetic and pharmacologic interventions and primary cell culture to characterize and elucidate the mechanism of MT. We show that MT correlates with donor cell persistence and the accumulation of donor‐derived proteins, mitochondria and transcripts in acceptor cells in vivo. MT requires cell contact in vitro and is associated with the formation of stable microtubule‐containing protrusions, termed photoreceptor nanotubes (PhNTs), that connect donor and host cells in vivo and in vitro. PhNTs mediate GFP transfer between connected cells in vitro. Furthermore, interfering with PhNT outgrowth by targeting Rho GTPase‐dependent actin remodelling inhibits MT in vivo. Collectively, our observations provide evidence for horizontal exchange of intracellular material via nanotube‐like connections between neurons in vivo. Synopsis: Transplanted photoreceptors extend cellular protrusions that contact host photoreceptors and mediate the transfer of transcripts, protein, and mitochondria. The understanding of this phenomenon could transform the cell based therapeutical strategy for certain types of retinal degeneration. The degree of GFP transfer to the host retina depends on the number of surviving transplanted donor cellsTransferred cargo include transcripts, nuclear, cytosolic, membrane associated proteins and organellesMaterial transfer is contact‐dependent and associated with the formation of microtubule containing protrusions that connect donor and acceptor cells after transplantationPhotoreceptor nanotube (PhNT) outgrowth and material transfer are regulated by Rho GTPase‐dependent actin cytoskeletal remodelling [ABSTRACT FROM AUTHOR]