Schwann cells transplanted into the adult central nervous system (CNS) can exert powerful growth-promoting effects on damaged axons. An important issue is whether central axons induced to regrow by Schwann cells retain the capacity to recognize and selectively innervate their appropriate target cells. To examine how Schwann cells may influence the specificity of neuron-neuron interactions in CNS neuropil, we cultured neonatal rat Schwann cells and mixed them with dissociated fetal tectal cells. In some instances, Schwann cells were prelabeled with Hoechst dye 33342. Schwann cells comprised between 2.5 and 15% of the combined cell population. After reaggregation, cografts were injected onto the midbrain of newborn rats. One to 6 months later, grafts were examined for the presence of Schwann cells and the pattern and density of host retinal innervation of the cografts was assessed. Immunohistochemical studies showed that areas of the transplants containing large numbers of surviving Hoechst-labeled Schwann cells were strongly immunoreactive for the low-affinity nerve growth factor receptor (p75), S-100, GFAP, and laminin. Very little peripheral (P(o) positive) myelin was seen. As in pure fetal tectal grafts, host retinal axons were sometimes observed to innervate superficial, localized areas in the cografts known to be homologous to the retinorecipient layers of the superior colliculus. Unlike pure tectal grafts, however, optic axons were not confined to these regions and fibers were often dispersed within the cograft neuropil. Dense growth was seen in association with Hoechst labeled Schwann cells and, in some cases, optic axons were observed to grow toward Schwann cells and away from nearby target areas. These observations suggest that, under certain circumstances, Schwann cells can stimulate retinal axons to grow into inappropriate (nontarget) regions in the CNS, presumably by producing growth promoting factors which mask or compete with signals released from the target neurons themselves.