It has been demonstrated that transplantation of bone marrow mesenchymal stem cells (BMSCs) improves recovery of injured spinal cord in animal models. However, the mechanism of how BMSCs promote repair of injured spinal cord remains under investigation. The present study investigated the neural differentiation of BMSCs, the lesion volume and axonal regrowth of injured spinal cord after transplantation. Seven days after spinal cord injury, 3 × 105 BMSCs or PBS (control) was delivered into the injury epicenter of the spinal cord. At 8 weeks after spinal cord injury, transplantation of BMSCs reduced the volume of cavity and increased spared white matter as compared to the control. BMSCs did not express the cell marker of neurons, astrocytes and oligodendrocytes in injured spinal cord. Transmission electron microscopic examination displayed an increase in the number of axons in BMSC rats. The effect of BMSCs on growth of neuronal process was further investigated by using a coculture system. The length and the number of neurites from spinal neurons significantly increased when they cocultured with BMSCs. PCR and immunochemical analysis showed that BMSCs expressed brain-derived neurotrophic factor (BDNF) and glia cell line-derived neurotrophic factor (GDNF). These findings demonstrate that transplantation of BMSCs reduces lesion volume and promotes axonal regrowth of injured spinal cord.