Spinal cord injury (SCI) remains a formidable challenge in the clinic. In the current study, we examined the effects of the TLX gene on the proliferation and neuronal differentiation of dermal multipotent stem cells (DMSCs) in vitro and the potential of these cells to improve SCI in rats in vivo. DMSCs were stably transfected with TLX-expressing plasmid (TLX/DMSCs). Cell proliferation was examined using the MTT assay, and neuronal differentiation was characterized by morphological observation combined with immunocytochemical/immunofluorescent staining. The in vivo functions of these cells were evaluated by transplantation into rats with SCI, followed by analysis of hindlimb locomotion and post-mortem histology. Compared to parental DMSCs, TLX/DMSCs showed enhanced proliferation and preferential differentiation into NF200-positive neurons in contrast to GFAP-positive astrocytes. When the undifferentiated cells were transplanted into rats with SCI injury, TLX/DMSCs led to significant improvement in locomotor recovery and healing of SCI, as evidenced by reduction in scar tissues and cavities, increase in continuous nerve fibers/axons and enrichment of NF200-positive neurons on the histological level. In conclusion, TLX promotes the proliferation and neuronal differentiation of DMSCs and thus, may serve as a promising therapy for SCI in the clinic.