Bridging of a lesion site and minimizing local damage to create an environment permissive for regeneration are both primary components of a successful strategy to repair spinal cord injury (SCI). Olfactory ensheathing cells (OECs) are prime candidates for autologous transplantation to bridge this gap, but little is known currently about their mechanism of action. In addition, OECs from the accessible lamina propria (LP) of the olfactory mucosa are a more viable source in humans but have yet to be tested for their ability to promote regeneration in established SCI models. Here, mouse LP-OECs expressing green fluorescent protein (GFP) transplanted directly into both rat and mouse dorsolateral spinal cord lesion sites demonstrate limited migration but interact with host astrocytes to develop a new transitional zone at the lesion border. LP-OECs also promote extensive migration of host Schwann cells into the central nervous system repair zone and stimulate angiogenesis to provide a biological scaffold for repair. This novel environment created by transplanted and host glia within the spinal cord inhibits cavity and scar formation and promotes extensive sprouting of multiple sensory and motor axons into and through the lesion site. Sixty days after rat SCI, serotonin- and tyrosine hydroxylase-positive axons sprouted across the lesion into the distal cord, although axotomized rubrospinal axons did not. Thus, even in a xenotransplant paradigm, LP-OECs work collaboratively with host glial cells to create an environment to ameliorate local damage and simultaneously promote a regenerative response in multiple axonal populations. J. Comp. Neurol. 473:1–15, 2004. © 2004 Wiley-Liss, Inc.