This manuscript describes a means to enrich for neural progenitors from the marrow stromal cell (MSC) population and thereafter to direct them to the mature Schwann cell fate. We subjected rat and human MSCs to transient hypoxic conditions (1% oxygen for 16 h) followed by expansion as neurospheres upon low-attachment substratum with epidermal growth factor (EGF)/basic fibroblast growth factor (bFGF) supplementation. Neurospheres were seeded onto poly-D-lysine/laminin-coated tissue culture plastic and cultured in a gliogenic cocktail containing β-Heregulin, bFGF, and platelet-derived growth factor (PDGF) to generate Schwann cell-like cells (SCLCs). SCLCs were directed to fate commitment via coculture for 2 weeks with purified dorsal root ganglia (DRG) neurons obtained from E14-15 pregnant Sprague Dawley rats. Mature Schwann cells demonstrate persistence in S100β/p75 expression and can form myelin segments. Cells generated in this manner have potential applications in autologous cell transplantation following spinal cord injury, as well as in disease modeling.