Concentration gradient of diffusible bioactive chemicals assumes many important roles in regulating cellular behavior. Among the many factors influencing functional recovery after nerve injury, such as topographical and biochemical signals, concentration gradients of neurotrophic factors provide chemotactic cues for neurite outgrowth and targeted renervation. In this study, a concentration gradient of nerve growth factor (NGF, 0-250 μg/ml) was incorporated throughout the thickness of poly(ε-caprolactone)-poly(ethylene glycol) coaxial electrospun nanofibrous scaffolds (∼700 μm thick with ∼800 nm average fiber diameter). The existence of the protein gradient upon protein release was demonstrated using a customized under-agarose-PC12 neurite outgrowth assay. When exposed to scaffolds endowed with NGF concentration gradient (NGF-CG), a significant difference in the percentage of cells bearing neurite outgrowth was observed (7.1 ± 1.9% vs. 0.8 ± 0.3% for cells exposed to high vs. low concentration surface, respectively; p < 0.05). In contrast, no significant difference was observed when cells were exposed to scaffolds that encapsulated a fixed concentration of NGF. Direct culture of PC12 cells on the substrates demonstrated the cytocompatibility and the effect of diffusible NGF gradient on neurite outgrowth. A significant difference in the percentage of cells with neurite extensions was observed when PC12 cells were seeded on NGF-CG scaffolds (21.2 ± 3.6% vs. 10.4 ± 1.3% on high vs. low concentration surface, respectively; p < 0.05). Furthermore, Z-stack confocal microscopy tracking of neurite extensions revealed the chemotatic guidance effect of NGF concentration gradient. Directed and enhanced neurite penetration into the scaffolds towards increasing NGF concentration was observed. In vitro release study indicated that the encapsulated NGF was released in a sustained manner for at least 30 days (80.4 ± 3.6% released). Taken together, this study demonstrates the feasibility of incorporating concentration gradient of diffusible bioactive chemicals in nanofibrous scaffolds via the coaxial electrospinning technique.