Abstract Objective. Although neural-enabled prostheses have been used to restore some lost functionality in clinical trials, they have faced difficulty in achieving high degree of freedom, natural use compared to healthy limbs. This study investigated the in vivo functionality of a flexible and scalable regenerative peripheral-nerve interface suspended within a microchannel-embedded, tissue-engineered hydrogel (the magnetically aligned regenerative tissue-engineered electronic nerve interface (MARTEENI)) as a potential approach to improving current issues in peripheral nerve interfaces. Approach. Assembled MARTEENI devices were implanted in the gaps of severed sciatic nerves in Lewis rats. Both acute and chronic electrophysiology were recorded, and channel-isolated activity was examined. In terminal experiments, evoked activity during paw compression and stimulus response curves generated from proximal nerve stimulation were examined. Electrochemical impedance spectroscopy was performed to assess the complex impedance of recording sites during chronic data collection. Features of the foreign-body response (FBR) in non-functional implants were examined using immunohistological methods. Main results. Channel-isolated activity was observed in acute, chronic, and terminal experiments and showed a typically biphasic morphology with peak-to-peak amplitudes varying between 50 and 500 µV. For chronic experiments, electrophysiology was observed for 77 days post-implant. Within the templated hydrogel, regenerating axons formed minifascicles that varied in both size and axon count and were also found to surround device threads. No axons were found to penetrate the FBR. Together these results suggest the MARTEENI is a promising approach for interfacing with peripheral nerves. Significance. Findings demonstrate a high likelihood that observed electrophysiological activity recorded from implanted MARTEENIs originated from neural tissue. The variation in minifascicle size seen histologically suggests that amplitude distributions observed in functional MARTEENIs may be due to a combination of individual axon and mini-compound action potentials. This study provided an assessment of a functional MARTEENI in an in vivo animal model for the first time.