A methodology is investigated for determining the location of active pathways in a peripheral nerve using measurements from a multicontact cuff electrode. The problem is treated as an inverse problem of source localization and solved using the sLORETA algorithm, developed for the electroencephalogram/magnetoencephalogram source localization problem. Simulated measurements are generated corresponding to action potentials traveling along either one or three pathways in a rat sciatic nerve. The performance of the proposed methodology using these measurements is evaluated in terms of localization error, missed pathways, and spurious pathways. The source localization performance when assuming an idealized nerve anatomy is compared to that when the correct anatomy is known. The effect of a spatio-temporal constraint based on the nerve anatomy and electrophysiology is also investigated. The approach in its present form was not found to be sufficiently reliable for subfascicular localization in practice, due to mean localization errors in the 140-180 μm range, high numbers of spurious pathways, and low resolution. Nonetheless, the constraints were shown to produce a marked reduction in the number of spurious pathways. Conditions under which the source localization approach may be useful for peripheral nerves are discussed.