Transplantation of neural progenitor cells (NPCs) holds great potential for the treatment of spinal cord injuries. The survival and differential fates of transplanted NPCs in the cord are key factors contributing to the success of the therapy. In this study, we investigate the effects of lithium, a widely used antidepressant drug, on the survival, proliferation and differentiation of spinal cord-derived NPCs in cultures and after transplantation into the spinal cord. Our results show that clinically relevant doses of lithium increase the proliferation of grafted NPCs at 2 weeks post-grafting and neuronal generation by grafted NPCs at 2 weeks and 4 weeks post-grafting. However, lithium does not cause preferential differentiation of NPCs into astrocytes or oligodendrocytes both in vitro and after transplantation. Our results also show that chronic treatment with lithium (up to 4 weeks) reduces microglia and macrophage activation, indicating that lithium treatment can affect the host immune response. The results of the present study provide evidence that lithium may have therapeutic potential in cell replacement strategies for CNS injury due to its ability to promote proliferation and neuronal generation of grafted NPCs and reduce the host immune reaction.