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Introduction Intraspinal grafting of human neural stem cells represents a promising approach to promote recovery of function after spinal trauma. Such a treatment may serve to: I) provide trophic support to improve survival of host neurons; II) improve the structural integrity of the spinal parenchyma by reducing syringomyelia and scarring in trauma-injured regions; and III) provide neuronal populations to potentially form relays with host axons, segmental interneurons, and/or α-motoneurons. Here we characterized the effect of intraspinal grafting of clinical grade human fetal spinal cord-derived neural stem cells (HSSC) on the recovery of neurological function in a rat model of acute lumbar (L3) compression injury. Methods Three-month-old female Sprague–Dawley rats received L3 spinal compression injury. Three days post-injury, animals were randomized and received intraspinal injections of either HSSC, media-only, or no injections. All animals were immunosuppressed with tacrolimus, mycophenolate mofetil, and methylprednisolone acetate from the day of cell grafting and survived for eight weeks. Motor and sensory dysfunction were periodically assessed using open field locomotion scoring, thermal/tactile pain/escape thresholds and myogenic motor evoked potentials. The presence of spasticity was measured by gastrocnemius muscle resistance and electromyography response during computer-controlled ankle rotation. At the end-point, gait (CatWalk), ladder climbing, and single frame analyses were also assessed. Syrinx size, spinal cord dimensions, and extent of scarring were measured by magnetic resonance imaging. Differentiation and integration of grafted cells in the host tissue were validated with immunofluorescence staining using human-specific antibodies. Results Intraspinal grafting of HSSC led to a progressive and significant improvement in lower extremity paw placement, amelioration of spasticity, and normalization in thermal and tactile pain/escape thresholds at eight weeks post-grafting. No significant differences were detected in other CatWalk parameters, motor evoked potentials, open field locomotor (Basso, Beattie, and Bresnahan locomotion score (BBB)) score or ladder climbing test. Magnetic resonance imaging volume reconstruction and immunofluorescence analysis of grafted cell survival showed near complete injury-cavity-filling by grafted cells and development of putative GABA-ergic synapses between grafted and host neurons. Conclusions Peri-acute intraspinal grafting of HSSC can represent an effective therapy which ameliorates motor and sensory deficits after traumatic spinal cord injury.