Benefits of exercise on nerve regeneration and functional recovery have been reported in both central and peripheral nervous system disease models. However, underlying molecular mechanisms of enhanced regeneration and improved functional outcomes are less understood. We used a peripheral nerve regeneration model that has a good correlation between functional outcomes and number of motor axons that regenerate to evaluate the impact of treadmill exercise. In this model, the median nerve was transected and repaired while the ulnar nerve was transected and prevented from regeneration. Daily treadmill exercise resulted in faster recovery of the forelimb grip function as evaluated by grip power and inverted holding test. Daily exercise also resulted in better regeneration as evaluated by recovery of compound motor action potentials, higher number of axons in the median nerve and larger myofiber size in target muscles. Furthermore, these observations correlated with higher levels of neurotrophic factors, glial derived neurotrophic factor (GDNF), brain derived neurotrophic factor (BDNF) and insulin-like growth factor-1 (IGF-1), in serum, nerve and muscle suggesting that increase in muscle derived neurotrophic factors may be responsible for improved regeneration.