Neural stem cell (NSCs) transplantation has been one of the hot topics in the repair of spinal cord injury (SCI). Fibroblast growth factor (FGF) is considered a promising nerve injury therapy after SCI. However, owing to a hostile hypoxia condition in SCI, there remains a challenging issue in implementing these tactics to repair SCI. In this report, we used adeno-associated virus 2 (AAV2), a prototype AAV used in clinical trials for human neuron disorders, basic FGF (bFGF) gene under the regulation of hypoxia response element (HRE) was constructed and transduced into NSCs to yield AAV2-5HRE-bFGF-NSCs. Our results showed that its treatment yielded temporally increased expression of bFGF in SCI, and improved scores of functional recovery after SCI compared to vehicle control (AAV2-5HRE-NSCs) based on the analyses of the inclined plane test, Basso–Beattie–Bresnahan (BBB) scale and footprint analysis. Mechanistic studies showed that AAV2-5HRE-bFGF-NSCs treatment increased the expression of neuron-specific neuronal nuclei protein (NeuN), neuromodulin GAP43, and neurofilament protein NF200 while decreased the expression of glial fibrillary acidic protein (GFAP) as compared to the control group. Further, the expressions of autophagy-associated proteins LC3-II and Beclin 1 were decreased, whereas the expression of P62 protein was increased in AAV2-5HRE-bFGF-NSCs treatment group. Taken together, our data indicate that AAV2-5HRE-bFGF-NSCs treatment improved the recovery of SCI rats, which is accompanied by evidence of nerve regeneration, and inhibition of SCI-induced glial scar formation and cell autophagy. Thus, this study represents a step forward towards the potential use of AAV2-5HRE-bFGF-NSCs for future clinical trials of SCI repair.