The effect of prostaglandin E1 (PGE1) encapsulated in nanoparticles (Nano PGE1) on motor dysfunction and muscle atrophy induced by sciatic nerve injury (SNI) was investigated in rats, and was compared with PGE1 encapsulated in lipid microspheres (Lipo PGE1) or PGE1 clathrated in cyclodextrin (PGE1-CD). The hind limb muscle weight ratio decreased until 2 weeks after SNI. All 3 PGE1 formulations significantly improved SNI-induced motor dysfunction. Nano PGE1 significantly promoted recovery from muscle atrophy at 2 and 3 weeks after SNI. Lipo PGE1 was also effective, but multiple doses were required. Compared with the SNI control group, the Nano PGE1 group showed upregulation of vascular endothelial growth factor (VEGF) and agrin expression in the injured sciatic nerve and atrophic muscles. Nano PGE1 accumulated prominently at the site of nerve injury and persisted for longer than Lipo PGE1 or PGE1-CD. Expression of all EP receptors was detected in the normal sciatic nerve, and EP2 expression increased after SNI. Finally, Nano PGE1 promoted ERK1/2 and Akt phosphorylation. These findings suggest that PGE1 released from nanoparticles accumulates at sites of nerve injury and increases VEGF production by augmenting ERK1/2 phosphorylation via EP receptor signaling, thus promoting tissue repair and regeneration.