Here we use peripheral nerve regeneration as a model to address the critical issues of using induced pluripotent stem cells (iPSCs) and their derivatives for tissue regeneration. In the past year, we have made progress in all three Specific Aims, as detailed below. In Specific Aim 1, we generated 5 new integration-free IPSC lines by using episomal reprogramming. We also optimized the protocol to derive neural crest stem cells (NCSCs) from integration-free human iPSCs, and fully characterized the derived cells. Transplantation of selected NCSC lines significantly improved the functional recovery of peripheral nerve following injury. In addition, transplanted NCSCs differentiated into Schwann cells around regenerated axons. Nerve growth factor (NGF) appeared to be a major neurotrophic factor expressed by NCSCs, which was involved in nerve regeneration. In Specific Aim 2, we derived and characterized Schwann cells from NCSCs. Transplantation of NCSCs or Schwann cells showed that NCSC transplantation had better functional recovery than Schwann cell transplantation, suggesting that the differentiation stage of transplanted cells is critical for stem cell therapies. In Specific Aim 3, we demonstrated that the soft matrix worked much better than stiffer matrix for NCSC delivery and the functional recovery of damaged nerve. A new direction for this Specific Aim is a ground-breaking finding that matrix stiffness regulates the direct reprograming of fibroblasts into neurons, which has applications in generating neurons for drug discovery and disease modeling. Overall, our findings underline the importance of stem cell differentiation stage and biomaterials property in stem cell therapies, and will have broad impact on using stem cells for nerve regeneration and many other regenerative medicine applications.