Stem cells have the capacity to migrate towards CNS lesions and replace or rescue injured neurons. We examined the behavior of embryonic stem cells (ESC), bone marrow stromal cells (MSC) and olfactory ensheathing glia (OEC) grafted to injured rat brain or spinal cord and studied whether these cells participate in lesion repair, differentiate into neurons or astrocytes, and promote regeneration and functional recovery. The fate of ESC, MSC and OEC was also studied using cells labeled with superparamagnetic iron-oxide nanoparticles (SPION). The cells were transplanted into rats with a cortical photochemical lesion or a spinal cord compression lesion. In vivo MR imaging was used to track their fate; electron microscopy and Prussian blue staining confirmed the presence of SPION inside the cells. ESC or MSC, either directly injected into the cortex or spinal cord or systemically infused, migrated to the lesion, and some cells differentiated into neurons or astrocytes. The implantation of biocompatible polymer hydrogels seeded with MSC or OEC reduced scar formation and bridged the lesion, providing a scaffold to reform the tissue structure. All lesioned and grafted animals had significantly higher scores in BBB testing than did control animals and showed a recovery of sensitivity in their hind limbs. Our studies demonstrate the potential of a combination of stem cells and biomaterials as a therapeutic tool in the treatment of CNS injury.