The purpose of this study was to develop a biodegradable polymer nerve guide that locally delivers bioactive neurotrophic factors in physiologically relevant concentrations for the period required by transected peripheral nerves to cross from the proximal to distal nerve stump. Delivery of a neurotrophic factor may enhance nerve regeneration and could potentially be used to overcome the current limitations in nerve repair across large defects. Glial Cell Line-Derived Neurotrophic Factor (GDNF) is a known promoter of axonal elongation and branching and has shown promising pre-clinical results in analysis of nerve regeneration with nerve guides. In addition, GDNF has been shown to promote Schwann cell proliferation and migration. In this study we have created a double-walled microsphere delivery system for bioactive GDNF with a sustained release profile>50 days in vitro. Microspheres were incorporated within degradable poly(caprolactone) nerve guides in a reproducible distribution. Implantation of nerve guides across a 1.5 cm defect in a rat sciatic nerve gap resulted in an increase in tissue integration in both the proximal and distal segments of the lumen of the nerve guide after 6 weeks. In addition, transverse sections of the distal region of the explanted guides showed the presence of Schwann cells while none were detectable in negative control guides. Migration of Schwann cells to double-walled microspheres indicated that bioactive GDNF was encapsulated and delivered to the internal environment of the nerve guide. Because GDNF increased tissue formation within the nerve guide lumen and also promoted the migration and proliferation of Schwann cells, the nerve guides presented within this study show promise toward the development of an off-the-shelf product alternative that promotes nerve regeneration beyond that capable with currently available nerve guides.