Intrinsic and extrinsic inhibition of neuronal regeneration obstruct spinal cord (SC) repair in mammals. In contrast, adult zebrafish achieve functional recovery after complete SC transection. While studies of innate SC regeneration have focused on axon regrowth as a primary repair mechanism, how local adult neurogenesis affects functional recovery is unknown. Here, we uncover dynamic expression of zebrafish myostatin b (mstnb) in a niche of dorsal SC progenitors after injury. mstnb mutants show impaired functional recovery, normal glial and axonal bridging across the lesion, and an increase in the profiles of newborn neurons. Molecularly, neuron differentiation genes are upregulated, while the neural stem cell maintenance gene fgf1b is downregulated in mstnb mutants. Finally, we show that human fibroblast growth factor 1 (FGF1) treatment rescues the molecular and cellular phenotypes of mstnb mutants. These studies uncover unanticipated neurogenic functions for mstnb and establish the importance of local adult neurogenesis for innate SC repair.