Peripheral nerve injuries (PNI) that result in nerve gaps represent a major clinical challenge, frequently leading to long-term disability and a diminished quality of life for affected individuals. Despite advances in surgical techniques, functional recovery remains limited, highlighting the need for innovative therapeutic strategies. Mesenchymal stem cells (MSCs) have emerged as a promising avenue for nerve repair due to their regenerative, immunomodulatory, and neuroprotective properties. Thus, this review explored current approaches utilizing MSCs in the treatment of PNI, emphasizing their potential to enhance nerve regeneration and functional recovery. Furthermore, tissue engineering and transdifferentiation of MSCs into Schwann-like cells offer a versatile strategy to optimize therapeutic effects, paving the way for personalized medicine. Nevertheless, challenges persist regarding the clinical application of MSCs in PNI, including transplant safety, delivery methods, optimal dosing, and ethical considerations. A deeper understanding of the mechanisms underlying MSC action in PNI may contribute to more effective treatment protocols in the management of peripheral nerve defects.