Spontaneous recovery after spinal cord injury is limited. Transplantation of neural precursor cells (NPCs) into lesioned adult rat spinal cord results in only partial functional recovery, and most transplanted cells tend to differentiate predominantly into astrocytes. In order to improve functional recovery after transplantation, it is important that transplanted neural precursor cells appropriately differentiate into cell lineages required for spinal cord regeneration. In order to modulate the fate of transplanted cells, we advocate transplanting gene-modified neural precursor cells. We demonstrate that gene modification to inhibit bone morphogenetic protein (BMP) signaling by noggin expression promoted differentiation of neural precursor cells into neurons and oligodendrocytes, in addition to astrocytes after transplantation. Furthermore, functional recovery of the recipient mice with spinal cord injury was observed when noggin-expressing neural precursor cells were transplanted. These observations suggest that gene-modified neural precursor cells that express molecules involved in cell fate modulation could improve central nervous system (CNS) regeneration.