The formation of glial scars impedes growth of regenerating axons after CNS injuries such as spinal cord injury (SCI). Hepatocyte growth factor (HGF), originally identified as a mitogen for hepatocytes, exerts pleiotropic functions in the nervous system. HGF has been implicated in peripheral wound healing via regulation of the transforming growth factor beta (TGFβ), which is also a potent inducer of glial scar formation in CNS. In the present study, we found that HGF completely blocked secretion of TGFβ1 and β2 from activated astrocytes in culture. HGF also prevented expression of specific chondroitin sulfate proteoglycan (CSPG) species. To determine whether HGF inhibits glial scar formation in an in vivo SCI model, HGF overexpressing mesenchymal stem cells (HGF-MSCs) were transplanted into hemisection spinal cord lesions at C4. Transplantation of HGF-MSCs markedly diminished TGFβ isoform levels and reduced the extent of astrocytic activation. In addition, HGF-MSCs also significantly decreased neurocan expression and glycosaminoglycan chain deposition around hemisection lesions. Furthermore, animals treated with HGF-MSCs showed increased axonal growth beyond glial scars and improvement in recovery of forepaw function. Our results indicate that anti-glial scar effects of HGF, together with its known neurotrophic functions, could be utilized to ameliorate functional deficits following SCI.