The hair follicle bulge area is an abundant, easily accessible source of actively growing, pluripotent adult stem cells. Nestin, a protein marker for neural stem cells, is also expressed in follicle stem cells as well as their immediate differentiated progeny. The nestin-expressing hair follicle stem cells differentiated into neurons, glial cells, keratinocytes and smooth muscle cells in vitro. Hair-follicle stem cells were implanted into the gap region of a severed sciatic nerve. The hair follicle stem cells greatly enhanced the rate of nerve regeneration and the restoration of nerve function. The follicle stem cells transdifferentiated largely into Schwann cells which are known to support neuron regrowth. Function of the rejoined sciatic nerve was measured by contraction of the gastrocnemius muscle upon electrical stimulation. After severing the tibial nerve and subsequent transplantation of hair-follicle stem cells, the transplanted mice recovered the ability to walk normally. These results suggest that hair-follicle stem cells provide an important accessible, autologous source of adult stem cells for regenerative medicine.