Schwann cells (SCs) are among the most attractive cellular candidates for the development of remyelination therapies for CNS lesions. Yet, their integration in the CNS is inhibited by astrocytes and therefore the use of genetically modified SCs with improved properties is an alternative promising approach. Our strategy for ameliorating the therapeutic potential of SCs has been to alter their adhesive properties by expressing on their surface the polysialylated (PSA) form of the neural cell adhesion molecule NCAM. In the present study, SCs from transgenic GFP-mice were transduced with a retroviral vector encoding sialyl-transferase X (STX), the enzyme responsible for transferring PSA on NCAM. Engineered STX-GFP-SCs with sustained PSA expression were thus generated and were found to have improved ability to associate with astrocytes in vitro. Importantly, when these cells were transplanted in vivo in a mouse model of spinal cord injury they promoted faster and significantly greater functional recovery as compared to using SCs transduced with a control retroviral vector or no cells at all. Morphological analysis indicated that the improved locomotor recovery correlated with earlier and enhanced remyelination by grafted STX-GFP-SCs, increased remyelination by host SCs as well as enhanced differentiation/remyelination by resident oligodendrocyte precursors. Moreover, sprouting of regenerating serotonergic nerve fibres, which are known to be important for locomotion and recovery after injury, was observed into and across the lesion site. These results underline the potential therapeutic benefit of early activation of myelin-forming cells to differentiate and remyelinate severed axons thus restoring functions in CNS trauma and/or demyelinating diseases.