Cellular and extracellular inhibitors are thought to restrict axon growth after chronic spinal cord injury (SCI), confronting the axon with a combination of chronic astrocytosis and extracellular matrix-associated inhibitors that collectively constitute the chronic “scar.” To examine whether the chronically injured environment is strongly inhibitory to axonal regeneration, we grafted permissive autologous bone marrow stromal cells (MSCs) into mid-cervical SCI sites of adult rats, 6 weeks post-injury without resection of the “chronic scar.” Additional subjects received MSCs genetically modified to express neurotrophin-3 (NT-3), providing a further local stimulus to axon growth. Anatomical analysis 3 months post-injury revealed extensive astrocytosis surrounding the lesion site, together with dense deposition of the inhibitory extracellular matrix molecule NG2. Despite this inhibitory environment, axons penetrated the lesion site through the chronic scar. Robust axonal regeneration occurred into chronic lesion cavities expressing NT-3. Notably, chronically regenerating axons preferentially associated with Schwann cell surfaces expressing both inhibitory NG2 substrates and the permissive substrates L1 and NCAM in the lesion site. Collectively, these findings indicate that inhibitory factors deposited at sites of chronic SCI do not create impenetrable boundaries and that inhibition can be balanced by local and diffusible signals to generate robust axonal growth even without resecting chronic scar tissue.