Cauda equina syndrome (CES) is characterized by varying patterns of low back pain, sciatica, lower extremity sensorimotor loss, and bowel and bladder dysfunction. The prognosis for complete recovery of CES is dependent on not only the time before surgical intervention with decompression but also the severity of the nerve damage. Delayed or severe nerve compression impairs the capability of nerve regeneration. Transplantation of neural stem cells (NSCs) may facilitate axon regeneration and functional recovery in a spectrum of neurological disorders. Our study shows that the NSCs derived from early postnatal dorsal root ganglion (DRG) are able to proliferate to form neurospheres and differentiate into O4+ oligodendrocytes but not glial fibrillary acidic protein (GFAP+) astrocytes or βIII-tubulin+ neurons in vitro. After intrathecal transplantation into the lumbar spinal canal stenosis animal model, most of the GFP-expressing NSCs were induced to differentiate into oligodendrocytes in vivo. Although the recovery of sensorimotor function was not significantly improved in rats with transplantation therapy, our results implied that subarachnoid microinjection of NSCs may promote axon regeneration of DRG neurons in the cauda equina model after nerve injury.