We previously demonstrated that coadministration of glial cell line‐derived neurotrophic factor (GDNF) with grafts of Schwann cells (SCs) enhanced axonal regeneration and remyelination following spinal cord injury (SCI). However, the cellular target through which GDNF mediates such actions was unclear. Here, we report that GDNF enhanced both the number and caliber of regenerated axons in vivo and increased neurite outgrowth of dorsal root ganglion neurons (DRGN) in vitro, suggesting that GDNF has a direct effect on neurons. In SC‐DRGN coculture, GDNF significantly increased the number of myelin sheaths produced by SCs. GDNF treatment had no effect on the proliferation of isolated SCs but enhanced the proliferation of SCs already in contact with axons. GDNF increased the expression of the 140 kDa neural cell adhesion molecule (NCAM) in isolated SCs but not their expression of the adhesion molecule L1 or the secretion of the neurotrophins NGF, NT3, or BDNF. Overall, these results support the hypothesis that GDNF‐enhanced axonal regeneration and SC myelination is mediated mainly through a direct effect of GDNF on neurons. They also suggest that the combination of GDNF administration and SC transplantation may represent an effective strategy to promote axonal regeneration and myelin formation after injury in the spinal cord. © 2009 Wiley‐Liss, Inc.