Transplantation of Schwann cells (SCs) is a promising treatment modality to improve neuronal regeneration. Identification of the transplanted cells is an important step when studying the development of this method. Genetic labeling is the most stable and reliable method of cell identification, but it is still unclear whether it has deleterious effect on SC characteristics. Our aim was to achieve a stable population of SCs transduced with the lacZ gene at a high frequency using a retroviral vector in vitro, and to follow the labeled SC in vitro to assess their viability and phenotypic marker expression. Furthermore, we transplanted lacZ-labeled SCs in a conduit to repair peripheral nerve to investigate their effect on nerve regeneration in vivo. Rat and human SCs were cultured and transduced with an MFG lacZ nls marker gene, achieving a transduction rate of 80% and 70%, respectively. Rat SCs were kept in culture for 27 weeks and examined every 4 weeks for expression of lacZ, viability, and phenotypic marker expression of GFAP, p75, MHC I and II. Throughout this period, transduced rat SCs remained viable and continued to proliferate. The proportion of cells expressing lacZ dropped only by 10% and the expression of phenotypic markers remained stable. Transduced human SCs were followed up for 4 weeks in culture. They proliferated and continued to express the lacZ gene and phenotypic marker expression of GFAP and p75 was preserved. Primary culture of transduced rat SCs were transplanted, syngeneically, in a conduit to bridge a 10 mm gap in sciatic nerve and the grafts were examined after 3 weeks for the presence and participation of labeled SCs and for axonal regeneration distance. Transplanted transduced rat SCs were clearly identified, taking part in the regeneration process and enhancing the axonal regeneration rate by 100% (at the optimal concentration) compared to conduits without SCs. Thus, retroviral introduction of lacZ gene has no deleterious effect on SCs in vitro and these SCs take part and enhance nerve regeneration in vivo.