Macrophage-mediated axonal dieback presents an additional challenge to regenerating axons after spinal cord injury. Adult adherent stem cells are known to have immunomodulatory capabilities, but their potential to ameliorate this detrimental inflammation-related process has not been investigated. Using an in vitro model of axonal dieback as well as an adult rat dorsal column crush model of spinal cord injury, we found that multipotent adult progenitor cells (MAPCs) can affect both macrophages and dystrophic neurons simultaneously. MAPCs significantly decrease MMP-9 (matrix metalloproteinase-9) release from macrophages, effectively preventing induction of axonal dieback. MAPCs also induce a shift in macrophages from an M1, or "classically activated" proinflammatory state, to an M2, or "alternatively activated" antiinflammatory state. In addition to these effects on macrophages, MAPCs promote sensory neurite outgrowth, induce sprouting, and further enable axons to overcome the negative effects of macrophages as well as inhibitory proteoglycans in their environment by increasing their intrinsic growth capacity. Our results demonstrate that MAPCs have therapeutic benefits after spinal cord injury and provide specific evidence that adult stem cells exert positive immunomodulatory and neurotrophic influences.