Cell transplantation is promising therapeutic strategy for spinal cord injury (SCI). Embryonic stem (ES) cells proliferate in vitro through many passages without losing their totipotentiality and are good sources for transplantable cells. However, whether the grafted cells further differentiate into mature motoneurons and directly contribute to the reconstruction of neuronal pathway in SCI remains largely unknown. In this study, mouse ES cells were treated with retinoic acid to induce neural progenitor cells, which were transplanted to the completely transected spinal cord at T7-T8 of mice. The mice transplanted with neural progenitor cells exhibited potent functional recoveries of their hind limbs and tail, showing significant higher scores of locomotor behavioral tests compared with SCI mice having vehicle injection, and electrophysiological assessment confirmed the re-emergence of motor evoked potential of injured spinal cord. Histological analysis of injured spinal cord demonstrated that engraftment of the neural progenitor cells into a vacant spinal column cavity made by removal of the transected spinal cord, reconnected the spinal cord and large numbers of grafted cells were found alive. The grafted cells expressed neurofilament middle chain and Synaptophysin, suggesting differentiation into mature neurons and synapse formation. RT-PCR and immunohistochemical analyses demonstrated that the differentiated neurons expressed markers for motoneurons, Islet1, HB9 and Lim1/2, suggesting their differentiation into spinal motoneurons. Taken together, neural progenitor cells derived from ES cells can be successfully transplanted to injured spinal cord, survive, further differentiate into motoneurons and reconstruct neuronal pathways in vivo, resulted in functional and electrophysiological recoveries of injured spinal cord.