Recent advances in the isolation and characterization of neural precursor cells suggest that they have properties that would make them useful transplants for the treatment of central nervous system disorders. We demonstrate here that spinal cord cells isolated from embryonic day 14 Sprague-Dawley and Fischer 344 rats possess characteristics of precursor cells. They proliferate as undifferentiated neurospheres in the presence of EGF and bFGF and can be maintained in vitro or frozen, expanded and induced to differentiate into both neurons and glia. Exposure of these cells to serum in the absence of EGF and bFGF promotes differentiation into astrocytes; treatment with retinoic acid promotes differentiation into neurons. Spinal cord cells labeled with a nuclear dye or a recombinant adenovirus vector carrying the lacZ gene survive grafting into the injured spinal cord of immunosuppressed Sprague-Dawley rats and non-immunosuppressed Fischer 344 rats for up to 4 months following transplantation. In the presence of exogenously supplied BDNF, the grafted cells differentiate into both neurons and glia. These spinal cord cell grafts are permissive for growth by several populations of host axons, especially when combined with exogenous BDNF administration, as demonstrated by penetration into the graft of axons immunopositive for 5-HT and CGRP. Thus, precursor cells isolated from the embryonic spinal cord of rats, expanded in culture and genetically modified, are a promising type of transplant for repair of the injured spinal cord.