Chitosan-poly(ethylene oxide) (chitosan-PEO) hydrogel was evaluated by the assays of live & dead, cell counting kit-8 (CCK-8), thiazoyl blue tetrazolium bromide (MTT) and neutral red for its applications in induction of adhesion, proliferation and differentiation of nerve cells by releasing nerve growth factors from the hydrogel. Fabrication of the chitosan-PEO hydrogel was obtained by mixing the precursor solutions of PEO with thiol groups and chitosan-acrylate, which was synthesized in advance by sequential chemical cross-linking of para-aminosalicyclic acid and 2-carboxyethyl acrylate to chitosan. After chemical characterizations of chitosan derivatives with FTIR and NMR, the chitosan-PEO hydrogels were evaluated by observing gel formation, and both biocompatibility and behaviors of PC-12 nerve cells. The nerve cells adhered on the hydrogel, and their adhesion and proliferation were affected by delivery of nerve growth factors (NGFs) from the hydrogels. Differentiation of PC-12 cells on the surface of the tissue culture flask was dependent upon the amount of NGFs sustain-released from the chitosan-PEO hydrogel as observed by the measurement of neurite length.