Peripheral nerve grafts were implanted bilaterally into the diencephalon of adult hamsters. One graft segment contained both viable Schwann cells and their basal lamina tubes. The Schwann cell population in the second graft segment was killed by freezing prior to implantation. Seven weeks after graft implantations, the extracranial end of each graft segment was exposed, transected and labelled with a fluorescent tracer substance. One week after the labelling procedure each animal was perfused and the diencephalon and midbrain were examined. Ultrastructural analyses of both types of graft demonstrated the persistence of the Schwann cell-derived basal lamina tubes. Retrogradely labelled neurons were found in all cases in which an intact graft remained in place for two months, but were seen in only one case with a frozen graft. Large numbers of myelinated and unmyelinated axons were seen within the intact grafts, but no axons were found in the previously frozen grafts. These results indicate that lesioned CNS axons are able to regenerate vigorously when provided with an environment which includes viable Schwann cells. But, CNS axons regenerate less well, if at all, when Schwann cells are absent. Further, it appears that Schwann cell-derived basal lamina tubes, when isolated from their parent cells, are insufficient to initiate or sustain CNS axonal regeneration.