The early events associated with axonal growth into 10-mm nerve gaps were studied histologically in the rat sciatic nerve model to determine if the outgrowth of blood vessels, Schwann cells, and axons could be enhanced. In the first two experimental groups, collagen nerve guides were filled with either saline or Matrigel. Marrow-derived mesenchymal stem cells (MSCs) were added to Matrigel in two other groups, one of which contained cells transfected with VEGF (MSC/VEGF). After 21 days, the injury site was exposed, fixed, sectioned, and volume fractions of the conduit contents were determined by point counting. The bioresorbable collagen conduits appropriately guided the axons and vessels in a longitudinal direction. The volume fraction of axons was significantly greater in the group with saline when compared with all three groups with Matrigel. This measure had a significant positive correlation with actual counts of myelinated axons. The blood vessel volume fraction in the Matrigel group decreased compared with the saline group, but was restored in the MSC/VEGF group. All Matrigel groups had comparable cellularity and showed a distribution of residual Matrigel in acellular zones. The saline group, by contrast, sustained a network of delicate fibroblastic processes that compartmentalized the nerve and its natural matrix as it became infiltrated by axons as minifascicles. In conclusion, the reduction of axonal outgrowth in the Matrigel groups, when compared with the saline group, suggests that Matrigel may impede the early regenerative process even when enriched by the addition of MSCs or VEGF-transfected cells.