In cell therapy, the most important factor for therapeutic efficacy is the stable supply of cells with best engraftment efficiency. To meet this requirement, we have developed a culture strategy such as three-dimensional sphere of human embryonic stem cell-derived mesenchymal stem cells (hESC-MSCs) in serum-free medium. To investigate the in vivo therapeutic efficacy of hESC-MSC spheres in nerve injury model, we transected the sciatic nerve in athymic nude mice and created a 2-mm gap. Transplantation of hESC-MSC as sphere repaired the injured nerve significantly better than transplantation of hESC-MSC as suspended single cells in regard to 1) nerve conduction (sphere; 28.81 ± 3.55 vs. single cells; 18.04 ± 2.10, p < 0.05) and 2) susceptibility of nerve stimulation at low voltage (sphere; 0.38 ± 0.08 vs. single cells; 0.66 ± 0.11, p < 0.05) at 8 weeks. Recovery after sphere transplantation was near-complete when compared with the data of normal control (sphere 28.81 ± 3.55 vs normal 32.62 ± 2.85 in nerve conduction : sphere 0.38 ± 0.08 vs normal 0.36 ± 0.67 in susceptibility of nerve stimulation, no significant difference, respectively). Recovery in function of the injured nerve was well corroborated by the histologic evidence of regenerated nerve. In the mechanistic analysis, the supernatant of sphere-forming hESC-MSC contains hepatocyte growth factor and insulin-like growth factor-binding protein-1 significantly more than the supernatant of the single cells of hESC-MSC has, which might be the key factors for the improved engraftment efficiency and greater regeneration of injured peripheral nerve.