There is no effective strategy for the treatment of spinal cord injury (SCI), a devastating condition characterized by severe hypoxia and ischemic insults. In this study, we investigated the histology and pathophysiology of the SCI milieu in a rat model and found that areas of hypoxia were unevenly interspersed in compressed SCI. With this new knowledge, we generated embryonic neural stem cells (NSCs) expressing basic fibroblast growth factor (bFGF) under the regulation of five hypoxia-responsive elements (5HRE) using a lentiviral vector (LV-5HRE-bFGF-NSCs) to specifically target these hypoxic loci. SCI models treated with bFGF expressed by the LV-5HRE-bFGF-NSCs viral vector demonstrated improved recovery, increased neuronal survival, and inhibited autophagy in spinal cord lesions in the rat model due to the reversal of hypoxic conditions at day 42 after injury. Furthermore, improved functional restoration of SCI with neuron regeneration was achieved in vivo, accompanied by glial scar inhibition and the evidence of axon regeneration across the scar boundary. This is the first study to illustrate the presence of hypoxic clusters throughout the injury site of compressed SCI and the first to show that the transplantation of LV-5HRE-bFGF-NSCs to target this hypoxic microenvironment enhanced the recovery of neurological function after SCI in rats; LV-5HRE-bFGF-NSCs may therefore be a good candidate to evaluate cellular SCI therapy in humans.