For degenerative retinal diseases, like the acquired form exemplified by age-related macular degeneration (AMD), there is currently no cure. This study was to explore a stem cell therapy and a stem cell based gene therapy for sodium iodate (SI)-induced retinal degeneration in rats. Three cell types, i.e., rat mesenchymal stem cells (rMSCs) alone, erythropoietin (EPO) gene modified rMSCs (EPO-rMSCs) or doxycycline (DOX) inducible EPO expression rMSCs (Tet-on EPO-rMSCs), were transplanted into the subretinal spaces of SI-treated rats. The rMSCs were prepared for transplantation after 3 to 5 passages or modified with EPO gene. During the 8 weeks after the transplantation, the rats treated with rMSCs alone or with two types of EPO-rMSCs were all monitored with fundus examination, fundus fluorescein angiography (FFA) and electroretinogram. The transplantation efficiency of donor cells was examined for their survival, integration and differentiation. Following the transplantation, labeled donor cells were observed in subretinal space and adopted RPE morphology. EPO concentration in vitreous and retina of SI-treated rats which were transplanted with EPO-rMSCs or Tet-on EPO-rMSCs was markedly increased, in parallel with the improvement of retinal morphology and function. These findings suggest that rMSCs transplantation could be a new therapy for degenerative retinal diseases since it can protect and rescue RPE and retinal neurons, while EPO gene modification to rMSCs could be an even better option.