Axonal changes, in particular the breakdown and removal of the myelin sheath, were studied using morphological method and cytochemical technique in the sciatic nerves of rats following transection. The details of axonal loss were examined during the first few days after transection. Axonal degradation was immediately accompanied by the fragmentation of the myelin sheath. It was found that: (a) a part of the myelin sheath separated from Schwann cells and smashed into debris, then the myelin debris was phagocytosed and digested by macrophages at endoneurial space; the others, most of the myelin sheath, remained within Schwann cells until being digested; (b) both small debris of myelin sheath (SDMS) and large membrane-bound myelin debris (LMBMD) were found in Schwann cells; acid phosphatase (AcPase) activity was detected in SDMS earlier than in LMBMD; (c) macrophages were found in myelin sheath tubes; they participated in removing a part of degenerating axons. Observation confirmed that Schwann cells had no ability to actively phagocytose myelin, that the majority of myelin debris were removed by Schwann cells, and that the minority of them were dealt with by macrophages. The ability of Schwann cells to digest myelin debris suggested that Schwann cells play a crucial role in vivo in removing myelin debris and that the process of myelin debris in Schwann cells might be significant for their mitotic activity.