Neural interfaces are implanted devices that couple the nervous system to electronic circuitry. They are intended for long term use to control assistive technologies such as muscle stimulators or prosthetics that compensate for loss of function due to injury. Here we present a novel design of interface for peripheral nerves. Recording from axons is complicated by the small size of extracellular potentials and the concentration of current flow at nodes of Ranvier. Confining axons to microchannels of ~100 µm diameter produces amplified potentials that are independent of node position. After implantation of microchannel arrays into rat sciatic nerve, axons regenerated through the channels forming 'mini-fascicles', each typically containing ~100 myelinated fibres and one or more blood vessels. Regenerated motor axons reconnected to distal muscles, as demonstrated by the recovery of an electromyogram and partial prevention of muscle atrophy. Efferent motor potentials and afferent signals evoked by muscle stretch or cutaneous stimulation were easily recorded from the mini-fascicles and were in the range of 35–170 µV. Individual motor units in distal musculature were activated from channels using stimulus currents in the microampere range. Microchannel interfaces are a potential solution for applications such as prosthetic limb control or enhancing recovery after nerve injury.