During peripheral nerve development the Schwann cell population is expanded so that adequate numbers are available for ensheathment of both nonmyelinated and myelinated nerve fibres. As ensheathment of these fibres progresses each axon--Schwann cell unit becomes surrounded by a basal lamina, providing a unique microtubular framework within the peripheral nerve trunk. Tissue culture studies of pure populations of neurones and Schwann cells cultured separately and in combination indicate that a surface component on the axon provides a mitogenic signal to Schwann cells requiring cell-cell contact. Biochemical, electron microscopic and immunocytochemical analyses of these cultures indicate that Schwann cells in contact with axons are able to generate a basal lamina (containing type IV collagen, laminin and heparan sulphate proteoglycan) and fibrous collagen, without the aid of other cells, and that axonal contact is required for deposition of the basal lamina. The role of Schwann cells and the extracellular matrix they synthesize and organize, as well as the role of the other known products of the Schwann cells in the process of peripheral nerve regeneration, are discussed. It is suggested that the large numbers and advantageous position of the Schwann cells, as well as their ability to provide their own surfaces, a basal lamina and multiple secretory products, may account for their extraordinary ability to foster nerve fibre regeneration.