Several studies have reported functional improvement after transplantation of neural stem cells into injured spinal cord. We now provide evidence that grafting of adult neural stem cells into a rat thoracic spinal cord weight-drop injury improves motor recovery but also causes aberrant axonal sprouting associated with allodynia-like hypersensitivity of forepaws. Transduction of neural stem cells with neurogenin-2 before transplantation suppressed astrocytic differentiation of engrafted cells and prevented graft-induced sprouting and allodynia. Transduction with neurogenin-2 also improved the positive effects of engrafted stem cells, including increased amounts of myelin in the injured area, recovery of hindlimb locomotor function and hindlimb sensory responses, as determined by functional magnetic resonance imaging. These findings show that stem cell transplantation into injured spinal cord can cause severe side effects and call for caution in the consideration of clinical trials.