The therapeutic potential of umbilical cord blood mesenchymal stem cells has been studied in several diseases. However, the possibility that human umbilical cord Wharton's jelly-derived mesenchymal stem cells (hUCMSCs) can be used to treat neonatal hypoxic–ischemic encephalopathy (HIE) has not yet been investigated. This study focuses on the potential therapeutic effect of hUCMSC transplantation in a rat model of HIE. Dermal fibroblasts served as cell controls. HIE was induced in neonatal rats aged 7 days. hUCMSCs labeled with Dil were then transplanted into the models 24 hr or 72 hr post-HIE through the peritoneal cavity or the jugular vein. Behavioral testing revealed that hUCMSC transplantation but not the dermal fibroblast improved significantly the locomotor function vs. vehicle controls. Animals receiving cell grafts 24 hr after surgery showed a more significant improvement than at 72 hr. More hUCMSCs homed to the ischemic frontal cortex following intravenous administration than after intraperitoneal injection. Differentiation of engrafted cells into neurons was observed in and around the infarct region. Gliosis in ischemic regions was significantly reduced after hUCMSC transplantation. Administration of ganglioside (GM1) enhanced the behavioral recovery on the base of hUCMSC treatment. These results demonstrate that intravenous transplantation of hUCMSCs at an early stage after HIE can improve the behavior of hypoxic–ischemic rats and decrease gliosis. Ganglioside treatment further enhanced the recovery of neurological function following hUCMSC transplantation. © 2013 Wiley Periodicals, Inc.