Transplantation of bone marrow-derived mesenchymal stromal cells (MSCs) into the injured brain or spinal cord may provide therapeutic benefit. Several models of central nervous system (CNS) injury have been examined, including that of ischemic stroke, traumatic brain injury and traumatic spinal cord injury in rodent, primate and, more recently, human trials. Although it has been suggested that differentiation of MSCs into cells of neural lineage may occur both in vitro and in vivo, this is unlikely to be a major factor in functional recovery after brain or spinal cord injury. Other mechanisms of recovery that may play a role include neuroprotection, creation of a favorable environment for regeneration, expression of growth factors or cytokines, vascular effects or remyelination. These mechanisms are not mutually exclusive, and it is likely that more than one contribute to functional recovery. In light of the uncertainty surrounding the fate and mechanism of action of MSCs transplanted into the CNS, further preclinical studies with appropriate animal models are urgently needed to better inform the design of new clinical trials.