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Introduction Optimizing nerve regeneration and mitigating denervation atrophy of target muscles are the keys to achieving successful VCA such as limb and face transplants. Methods Lewis rat was anesthetized, sciatic or individual sciatic nerve branches (tibial, peroneal and sural) of the right hind-limb were transected and surgically repaired. MSC (5 million; passage ≤6) or vehicle were administered locally and intravenously. Results Rat MSCs expanded ex vivo were CD29+, CD90+, CD34−, CD31−, CD45low, MHC Class I+, Class II−, and were pluripotent. Total sensory function recovery at 2 weeks post sciatic or individual nerve repair (SNR or INR) with or without MSC was ~ 1.2 on a scale of Grade 0–3 (0=No function; 3=Normal); by 12 weeks it was 2.6–2.8 (n≥6/group). Peroneal sensory function recovery was as early as 1 week but not tibial or sural. MSC treatment accelerated sensory function onset. At 8 weeks post-INR, the sciatic nerve function index (SFI), a measure of motor function (0=Normal; −100=Nonfunctional) was −34 and −77 in MSC and vehicle groups, respectively (n≥9); with SNR it was −72 and −92 in MSC and vehicle groups, respectively. Long-term motor function (24 weeks) was apparent in MSC treated INR (SFI −63) but not in SNR (SFI −100) model. Gastrocnemius muscle atrophy was lower (P ≤0.05) in INR compared to SNR model. Significant reduction in axonal area (P ≤0.002), g ratio/axonal myelination (P ≤0.05), reduced nerve fiber density, and increased degenerating axons in the distal segment of the transected/repaired tibial nerve was observed compared to the contralateral naive tibial nerve. Histology and molecular studies are ongoing. Conclusion MSC therapy appears to promote peripheral nerve regeneration and functional recovery.