Stem cells hold great promise in enhancing nerve regeneration. In particular, human mesenchymal stem cells (MSC) represent a clinically viable cell source due in part to their abundance and accessibility. Unfortunately, current methods to direct the fate of stem cells remains largely limited to biochemical-based approaches on two-dimensional substrates with restricted efficacies. Here we have evaluated a scaffold-based approach to directing stem cell differentiation. We demonstrate the combined effects of nanofiber topography and controlled drug release on enhancing MSC neural commitment. By encapsulating up to 0.3 wt.% retinoic acid (RA) within aligned poly(ε-caprolactone) (PCL) nanofibers (average diameter ∼270 nm, AF750), sustained released of RA was obtained for at least 14 days (∼60% released). Compared with tissue culture polystyrene (TCPS), the nanofiber topography arising from plain PCL nanofibers significantly up-regulated the expressions of neural markers, Tuj-1, MAP2, GalC and RIP at the mRNA and protein levels. Combined with sustained drug availability, more significant changes in cell morphology and enhancement of neural marker expression were observed. In particular, scaffold-based controlled delivery of RA enhanced MAP2 and RIP expression compared with bolus delivery despite lower amounts of drug (>8 times lower). The generally higher expression of the mature neuronal marker MAP2 compared with glial markers at the mRNA and protein levels suggested an enhanced potential of MSC neuronal differentiation. In addition, positive staining for synaptophysin was detected only in cells cultured on aligned scaffolds in the presence of RA. Taken together, the results highlight the advantage of the scaffold-based approach in enhancing the potential of MSC neuronal differentiation and demonstrated the importance of the drug delivery approach in directing cell fate. Such biomimicking drug-encapsulating scaffolds may permit subsequent direct cell transplantation and provide guidance cues to control the fate of endogenously recruited stem cells.