Innervation is a fundamental basis for function and survival of tissues. In the peripheral tissues, degenerative diseases create a neurotoxic metabolic milieu that either causes neurodegeneration or fails to sustain regenerative growth and reinnervation of injured/diseased tissues. Encapsulation of cells producing neurotrophic factors can augment axon growth and neuron survival; however, sustained innervation in vivo requires a combination of factors promoting axon growth and guidance pathway that are released in a tissue-specific context. Using novel encapsulation techniques and genetic tools, we manipulated retinoic acid-generating enzyme aldehyde dehydrogenase 1a1 (Aldh1a1) in adipocytes that are capable of promoting growth and innervation of white adipose tissue by sympathetic neurons. Aldh1a1 adipocytes secrete molecules that regulate axon guidance and markedly stimulate neurite outgrowth in vitro and in vivo. Based on studies with natural and synthetic RAR agonists and antagonists, gene microarray and nanostring arrays, we concluded that ephrin A5/ephrin A4 is a downstream pathway regulated by Aldh1a1. Encapsulation of Aldh1a1 adipocytes into alginate poly-L-lysine microcapsules induced functional innervation of adipose tissue in obese wild-type mice. We propose that encapsulated Aldh1a1 adipocytes could provide a therapeutic solution for the reinnervation of damaged tissues.