Numerous findings support the possibility that highly sulfated proteoglycans are inhibitory molecules which, at high concentration relative to growth-promoting signals, may regulate or guide axonal growth. Although most studies implicate sulfated proteoglycans in the poor regenerative capacity of the central nervous system, inhibitory proteoglycans also may play an important role in the successful regeneration of axons within peripheral nerve. Cultured rat schwannoma and Schwann cells produce chondroitin sulfate proteoglycan (CSPG) which binds to and inhibits the neurite-promoting activity of laminin [Muir et al. (1989) J. Cell Biol. 109:2353]. In the present study, we found a similar neurite-inhibiting activity associated with CSPG isolated from normal adult rat sciatic nerve. Following nerve crush injury, this inhibitory activity was increased sevenfold in regenerating nerve distal to the injury. This increase was largely attenuated by in vivo administration of the proteoglycan synthesis inhibitor beta-D-xyloside. In normal adult nerve, immunolabeling for CSPG core protein was concentrated in slender bands surrounding axon-Schwann cell units and within nodes of Ranvier. Following nerve crush injury, immunolabeling of CSPG and laminin became more intense in distal nerve and CSPG increased within endoneurium and surrounding nerve sheaths. Embryonic dorsal root ganglionic neurons cultured on longitudinal nerve sections extended neurites along the exposed surfaces of Schwann cell basal lamina. The length of neurites was increased 58% on normal nerve sections pretreated with chondroitinase. Even though laminin levels were elevated in basal lamina of injured nerve, neuritic growth on sections of injured nerve was not significant increased unless sections were pretreated with chondroitinase. These results indicate that inhibitory CSPG is up-regulated in injured nerve and plays a role in regulating axonal regeneration.