Spinal cord injury (SCI) often results in permanent neurological deficits below the injury site. Serotonergic raphespinal projections promote functional recovery after SCI, but spontaneous regeneration of most severed axons is limited by the glial cyst and scar that form at the lesion site. Stem cell (SC) transplantation offers a promising approach for inducing regeneration through the damaged area. Here we compare the effects of transplantation of embryonic neural precursors (NPs) or adult mesenchymal SCs, both of which are potential candidates for SC therapy. The spinal cord was hemisected at the L2 neuromer in adult mice. Two weeks post-injury, we transplanted neural precursors or mesenchymal SCs into the cord, caudal to the hemisection. Injured mice without a graft served as controls. Mice were tested for functional recovery on a battery of motor tasks, then killed and analysed for survival of grafted cells, for effects of engraftment on the local cellular environment and for the sprouting of serotonergic axons. Both types of SCs survived and were integrated into the host tissue, but only the NPs expressed neuronal markers. All transplanted animals displayed an increased number of serotonin-positive fibres caudal to the hemisection, compared with untreated mice. And both cell types led to improved motor performance. These results point to a therapeutic potential for such cell grafting.