Induced pluripotent stem cells (iPSCs) hold promise for the treatment of motoneuron diseases because of their distinct features including pluripotency, self-derivation and potential ability to differentiate into motoneurons. However, it is still unknown whether human iPSC-derived motoneurons can functionally innervate target muscles in vivo, which is the definitive sign of successful cell therapy for motoneuron diseases. In the present study, we demonstrated that human iPSCs derived from mesenchymal cells of the umbilical cord possessed a high yield in neural differentiation. Using a chemically-defined in vitro system, human iPSCs efficiently differentiated into motoneurons which displayed typical morphology, expressed specific molecules, and generated repetitive trains of action potentials. When transplanted into the injured musculocutaneous nerve of rats, they survived robustly, extended axons along the nerve, and formed functional connections with the target muscle (biceps brachii), thereby protecting the muscle from atrophy. Our study provides evidence for the first time that human iPSC-derived motoneurons are truly functional not only in vitro but also in vivo, and they have potential for stem cell-based therapies for motoneuron diseases.