Functional recovery after spinal cord lesion remains an important goal. A combination of inhibitory molecules and lack of appropriate permissive factors in the lesioned spinal cord results in failure of fiber tract reconnection and function. Experimental transplantation in rodent and primate models of CNS injuries has led to the idea that Schwann cells (SCs) are promising candidates for autologous transplantation to assist myelination of lesions and to deliver therapeutic agents in the CNS. In this study, we used retroviral transduction to genetically modify SCs from transgenic GFP-mice in order to overexpress the cell adhesion molecule L1, a protein promoting neurite outgrowth and implicated in myelination. SCs transduced to express L1 or its chimeric secreted form L1-Fc were mixed and grafted rostrally to the lesion site of adult mice immediately after spinal cord compression injury. Our results indicate that 3 weeks postoperatively, but not thereafter, mice transplanted with L1/L1-Fc-expressing SCs exhibited faster locomotor recovery as compared to animals which received SCs transduced with a control vector or no cells at all. Morphological analysis indicated that the accelerated functional recovery correlated with earlier and enhanced myelination by both grafted and host SCs. Moreover, increased sprouting of serotonergic fibers into and across the lesion site was observed in the L1/L1-Fc group as compared with controls. Our results suggest that transplantation of L1-overexpressing SCs enhances early events in spinal cord repair after injury and may be considered in combinatorial strategies together with other regeneration-promoting molecules.