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Background: When the spinal cord is damaged, medical procedures are vital to prevent of improvement of the lesion. Because of poor regeneration ability of central nervous tissue, the most injuries are irreversible. One of encouraging interventions for treatment of spinal cord injury is Schwann cell transplantation. However, isolation of Schwann cell for clinical interventions is complicated approach with low cells yield and purity. Thus, easily accessed sources like Adipose mesenchymal stem cells have been taken notice. Therefore, this study was planned to assess the effect of adipose stromal cell-derived Schwann cell transplantation in functional recovery after lateral hemisection in adult rats. Methods: After isolation, adipose stem cells were differentiated to Schwann cells. The differentiation was verified by immunocytochemistry and reverse transcription-polymerase chain reaction (RT-PCR). Then, we loaded the cells into collagen scaffolds with parallel aligned canals and transplanted into rats with 3 mm lesions at T9-T10 level. Motor and sensory improvement were evaluated by open field locomotor scale, narrow beam, and tail flick tests for 60 days. Subsequently, conventional histology and immunohistochemistry were performed. Results: In vitro results revealed that mesenchymal stem cells after differentiation gained Schwann cells morphology and markers. Schwann cell-grafted group had significantly higher locomotor and sensory scores in comparison with the control and scaffold without cell groups. Histological observations showed differentiated cells have the ability to improve axonal regeneration and remyelination. Conclusion: Our study proved that adipose tissue-derived Schwann cells can change the rough environment of damaged spinal cord and support axon regeneration and enhance functional recovery, and possibly be helpful for people suffering from spinal cord injuries. [ABSTRACT FROM AUTHOR]