Background: Peripheral nerve regeneration is a coordinated process of Schwann cell (SC) reprogramming and intrinsic neuronal growth program activation. Panaxydol (PND) is a strong biologically active traditional Chinese medicine monomer extracted from Panax notoginseng rhizomes. In vitro, PND protects neurons and SCs from injury and stimulates the expression and secretion of neurotrophic factors (NTFs) by SCs. We hypothesized that PND may also promote peripheral nerve regeneration in adult animals. Methods: PND (10 mg/kg body weight) was injected intraperitoneally into the Sprague–Dawley (SD) rats for two consecutive weeks after sciatic nerve transection. The morphology of the repaired sciatic nerve was evaluated after 16 weeks, and sensory and motor function recovery was evaluated using functional and behavioral techniques. Results: PND was biologically safe at an injection dose of 10 mg/kg/day. After 14 days, it significantly increased the myelination of regenerated nerve fibers, and promoted sensory and motor function recovery. In the early stage of injury, PND significantly upregulated the mRNA expression of brain-derived neurotrophic factor (BDNF) and its receptors in distal injured nerves, which may represent a possible mechanism by which PND promotes nerve regeneration in vivo. Conclusions: Our study demonstrated that PND leads to sensory and motor recovery in a sciatic nerve transection model rat. Furthermore, we showed that BDNF mRNA level was significantly increased in the injured distal nerve, potentially contributing to the functional recovery. Further research is warrantied to examine whether direct injection is a more efficient method to increase BDNF expression compared to an exogenous BDNF administration.