Motor neurons are the only adult mammalian neurons of the central nervous system to regenerate following injury. This ability is dependent on the environment of the peripheral nerve and an intrinsic capacity of motor neurons for regrowth. We report here the identification, using a technique known as messenger RNA differential display, of an extracellular signalling molecule, previously described as the pancreatic secreted protein Reg-2, that is expressed solely in regenerating and developing rat motor and sensory neurons. Axon-stimulated Schwann cell proliferation is necessary for successful regeneration, and we show that Reg-2 is a potent Schwann cell mitogen in vitro. In vivo, Reg-2 protein is transported along regrowing axons and inhibition of Reg-2 signalling significantly retards the regeneration of Reg-2-containing axons. During development, Reg-2 production by motor and sensory neurons is regulated by contact with peripheral targets. Strong candidates for peripheral factors regulating Reg-2 production are cytokines of the LIF/CNTF family, because Reg-2 is not expressed in developing motor or sensory neurons of mice carrying a targeted disruption of the LIF receptor gene, a common component of the receptor complexes for all of the LIF/CNTF family.