The principal aim of present study was to assess the therapeutic efficacy of bone morphogenetic protein-7 (BMP-7) induced differentiation of bone marrow mesenchymal stem cells (BMSCs) in a rat acute spinal cord injury (SCI) model. BMSCs were isolated from rats, and then divided into a control and a BMP-7 induction groups. The proliferation ability of BMSCs and glial cell markers were determined. Forty Sprague-Dawley (SD) rats were randomly divided into sham, SCI, BMSC, and BMP7 + BMSC groups (n = 10). Among these rats, the recovery of hind limb motor function, the pathological related markers, and motor evoked potentials (MEP) were identified. BMSCs differentiated into neuron-like cells after the introduction of exogenous BMP-7. Interestingly, the expression levels of MAP-2 and Nestin increased, whereas the expression level of GFAP decreased after the treatment with exogenous BMP-7. Furthermore, the Basso, Beattie, and Bresnahan (BBB) score reached 19.33 ± 0.58 in the BMP-7 + BMSC group at day 42. Nissl bodies in the model group were reduced compared to the sham group. After 42 days, in both the BMSC and BMP-7 + BMSC groups, the number of Nissl bodies increased. This is especially so for the number of Nissl bodies in the BMP-7 + BMSC group, which was more than that in the BMSC group. The expression of Tuj-1 and MBP in BMP-7 + BMSC group increased, whereas the expression of GFAP decreased. Moreover, the MEP waveform decreased significantly after surgery. Furthermore, the waveform was wider and the amplitude was higher in BMP-7 + BMSC group than that in BMSC group. BMP-7 promotes BMSC proliferation, induces the differentiation of BMSCsinto neuron-like cells, and inhibits the formation of glial scar. BMP-7 plays a confident role in the recovery of SCI rats.