Olfactory ensheathing cell (OEC) transplantation has emerged as a very promising therapy for spinal cord repair. In this study, we tested the ability of genetically modified OECs to secrete high levels of glial cell line‐derived neurotrophic factor (GDNF) to promote spinal cord repair. The GDNF gene was transduced into OECs using a retroviral‐based system. The engineered OECs were first characterized by their ability to express and secrete biologically active GDNF in vitro. After implantation into the spinal cord of adult rats with complete spinal cord transection, OEC survival and GDNF production were examined. The locomotor functions of animals were assessed and axon regeneration was evaluated at the morphological level. To our knowledge, we report for the first time that the genetically modified OECs are capable of producing GDNF in vivo to significantly improve recovery after spinal cord injury (SCI). This work combined the outgrowth‐promoting property of OECs with the neuroprotective effects of the additionally overexpressed neurotrophic factors and opens new avenues for the treatment of SCI.