The aim of this study was to assess the feasibility of transplanting mesenchymal stem cells (MSCs), genetically modified to express glial-derived neurotrophic factor (GDNF), to the contused rat spinal cord, and to subsequently assess their neural differentiation potential. MSCs expressing green fluorescent protein were transduced with a retroviral vector to express the neurotrophin GDNF. The transduction protocol was optimized by using green fluorescent protein-expressing retroviral constructs; approximately 90% of MSCs were transduced successfully after G418 selection. GDNF-transduced MSCs expressed the transgene and secreted growth factor into the media (similar to 12 ng/500,000 cells secreted into the supernatant 2 weeks after transduction). Injuries were established using an impactor device, which applied a given, reproducible force to the exposed spinal cord. GDNF-expressing MSCs were transplanted rostral and caudal to the site of injury. Spinal cord sections were analyzed 2 and 6 weeks after transplantation. We demonstrate that GDNF-transduced MSCs engraft, survive, and express the therapeutic gene up to 6 weeks posttransplantation, while maintaining an undifferentiated phenotype. In conclusion, transplanted MSCs have limited capacity for the replacement of neural cells lost as a result of a spinal cord trauma. However, they provide excellent opportunities for local delivery of neurotrophic factors into the injured tissue. This study underlines the therapeutic benefits associated with cell transplantation and provides a good example of the use of MSCs for gene delivery.