Mesenchymal stem cells (MSCs) secrete bioactive factors that exert diverse responses in vivo. In the present study, we explored mechanism how MSCs may lead to higher functional recovery in the animal stroke model. Bone marrow-derived MSCs were transplanted into the brain parenchyma 3 days after induction of stroke by occluding middle cerebral artery for 2 h. Stoke induced proliferation of resident neural stem cells in subventricular zone. However, most of new born cells underwent cell death and had a limited impact on functional recovery after stroke. Transplantation of MSCs enhanced proliferation of endogenous neural stem cells while suppressing the cell death of newly generated cells. Thereby, newborn cells migrated toward ischemic territory and differentiated in ischemic boundaries into doublecortin+ neuroblasts at higher rates in animals with MSCs compared to control group. The present study indicates that therapeutic effects of MSCs are at least partly ascribed to dual functions of MSCs by enhancing endogenous neurogenesis and protecting newborn cells from deleterious environment. The results reinforce the prospects of clinical application using MSCs in the treatment of neurological disorders.