Mesenchymal stem cells (MSCs) have been shown to improve outcomes after neonatal hypoxic-ischemic (HI) brain injury possibly by secretion of growth factors stimulating repair processes. We investigated whether MSCs, modified to secrete specific growth factors, can further enhance recovery. Using an in vitro assay, we show that MSC-secreting brain derived neurotrophic factor (BDNF), epidermal growth factor-like 7 (EGFL7), persephin (PSP), or sonic hedgehog (SHH) regulate proliferation and differentiation of neural stem cells. Moreover, mice that received an intranasal application of 100,000 MSC-BDNF showed significantly improved outcomes as demonstrated by improved motor function and decreased lesion volume compared with mice treated with empty vector (EV) MSCs. Treatment with MSC-EGFL7 improved motor function but had no effect on lesion size. Treatment with MSC-PSP or MSC-SHH neither improved outcome nor reduced lesion size in comparison with MSC-EV-treated mice. Moreover, mice treated with MSC-SHH showed even decreased functional outcomes when compared with those treated with MSC-EV. Treatment with MSC-BDNF induced cell proliferation in the ischemic hemisphere lasting at least 18 days after MSC administration, whereas treatment with MSC-EV did not. These data suggest that gene-modified cell therapy might be a useful approach to consider for treatment of neonatal HI brain damage. However, care must be taken when selecting the agent to overexpress.