Nervous system injury and disease have broad effects on the functional connectivity of the nervous system, but how injury signals are spread across neural circuits remains unclear. We explored how axotomy changes the physiology of severed axons and adjacent uninjured "bystander" neurons in a simple in vivo nerve preparation. Within hours after injury, we observed suppression of axon transport in all axons, whether injured or not, and decreased mechano- and chemosensory signal transduction in uninjured bystander neurons. Unexpectedly, we found the axon death molecule dSarm, but not its NAD+ hydrolase activity, was required cell autonomously for these early changes in neuronal cell biology in bystander neurons, as were the voltage-gated calcium channel Cacophony (Cac) and the mitogen-activated protein kinase (MAPK) signaling cascade. Bystander neurons functionally recovered at later time points, while severed axons degenerated via α/Armadillo/Toll-interleukin receptor homology domain (dSarm)/Axundead signaling, and independently of Cac/MAPK. Interestingly, suppression of bystander neuron function required Draper/MEGF10 signaling in glia, indicating glial cells spread injury signals and actively suppress bystander neuron function. Our work identifies a new role for dSarm and glia in suppression of bystander neuron function after injury and defines two genetically and temporally separable phases of dSarm signaling in the injured nervous system.