Differentiation of stem cells depends on environmental cues. In this study, acutely dissociated or expanded cells derived from embryonic day 14 (E14) rat cerebral cortex were transplanted into the distal tibial nerve stump of adult Fischer rats to determine whether a peripheral nervous system (PNS) environment would influence cell differentiation. Acutely dissociated cells, which included neural precursors and post-mitotic neurons, were transplanted immediately after harvest. Expanded cortical cells were transplanted after 8 days of culture with fibroblast growth factor-2 (FGF-2), a process that yields a population of neural stem cells and/or neural precursors. After 2 or 10 weeks in peripheral nerve, the majority of the transplanted cells was astrocytes, as judged from glial fibrillary acid protein (GFAP) expression. Only acutely dissociated transplants had cells that exhibited neuronal phenotypes. Those neurons present in transplants at 10 weeks stained positive for glutamate decarboxylase and did not reinnervate muscle. Maintenance of this cortical phenotype in peripheral nerve suggests that it is necessary to transplant cells with neural phenotypes appropriate for muscle to restore its function.