Cerebral ischemia triggers a cascade of cellular processes, which induce neuroprotection, inflammation, apoptosis and regeneration. At the neural network level, lesions concomitantly induce cerebral plasticity. Yet, many stroke survivors are left with a permanent motor deficit, and only little is known about the neurobiological factors that determine functional outcome after stroke. Transcranial magnetic stimulation (TMS) and magnetic resonance imaging (MRI) are non-invasive approaches that allow insights into the functional (re-) organization of the cortical motor system. We here combined neuronavigated TMS, MRI and analyses of connectivity to investigate to which degree recovery of hand function depends on corticospinal tract (CST) damage and biomarkers of cerebral plasticity like cortical excitability and motor network effective connectivity. As expected, individual motor performance of 12 stroke patients with persistent motor deficits was found to depend upon the degree of CST damage but also motor cortex excitability and interhemispheric connectivity. In addition, the data revealed a strong correlation between reduced ipsilesional motor cortex excitability and reduced interhemispheric inhibition in severely impaired patients. Interindividual differences in ipsilesional motor cortex excitability were stronger related to the motor deficit than abnormal interhemispheric connectivity or CST damage. Multivariate linear regression analysis combining the three factors accounted for more than 80 % of the variance in functional impairment. The inter-relation of cortical excitability and reduced interhemispheric inhibition provides direct multi-modal evidence for the disinhibition theory of the contralesional hemisphere following stroke. Finally, our data reveal a key mechanism (i.e., the excitability-related reduction in interhemispheric inhibition) accounting for the rehabilitative potential of novel therapeutic approaches which aim at modulating cortical excitability in stroke patients.