Demyelination was initiated in Xenopus sciatic nerves by an intraneural injection of lysolecithin over a 2-3-mm region. During the next week macrophages and Schwann cells removed all remaining damaged myelin by phagocytosis. Proliferating Schwann cells then began to remyelinate the axons, with the first few lamellae appearing 13 d after surgery. Action potentials were recorded optically through the use of a potential-sensitive dye. Signals could be detected both at normal nodes of Ranvier and within demyelinated segments. Before remyelination, conduction through the lesion occurred in only a small fraction of the fibers. However, in these particular cases we could demonstrate continuous (nonsaltatory) conduction at very low velocities over long (greater than one internode) lengths of demyelinated axons. We have previously found through loose patch clamp experiments that the internodal axolemma contains voltage-dependent Na+ channels at a density approximately 4% of that at the nodes. These channels alone, however, are insufficient for successful conduction past the transition point between myelinated and demyelinated regions. Small improvements in the passive cable properties of the axon, adequate for propagation at this site, can be realized through the close apposition of macrophages and Schwann cells. As the initial lamellae of myelin appear, the probability of success at the transition zone increases rapidly, though the conduction velocity through the demyelinated segment is not appreciably changed. A detailed computational model is used to test the relative roles of the internodal Na+ channels and the new extracellular layer. The results suggest a possible mechanism that may contribute to the spontaneous recovery of function often seen in demyelinating disease.