Spinal cord injury results in irreversible tissue damage followed by a very limited recovery of function. In this study we investigated whether transplantation of undifferentiated human induced pluripotent stem cells (hiPSCs) into the injured rat spinal cord is able to induce morphological and functional improvement. hiPSCs were grafted intraspinally or intravenously one week after a thoracic (T11) spinal cord contusion injury performed in Fischer 344 rats. Grafted animals showed significantly better functional recovery than the control rats which received only contusion injury. Morphologically, the contusion cavity was significantly smaller, and the amount of spared tissue was significantly greater in grafted animals than in controls. Retrograde tracing studies showed a statistically significant increase in the number of FB-labeled neurons in different segments of the spinal cord, the brainstem and the sensorimotor cortex. The extent of functional improvement was inversely related to the amount of chondroitin-sulphate around the cavity and the astrocytic and microglial reactions in the injured segment. The grafts produced GDNF, IL-10 and MIP1-alpha for at least one week. These data suggest that grafted undifferentiated hiPSCs are able to induce morphological and functional recovery after spinal cord contusion injury.