CNS injury often severs axons. Scar tissue that forms locally at the lesion site is thought to block axonal regeneration, resulting in permanent functional deficits. We report that inhibiting the generation of progeny by a subclass of pericytes led to decreased fibrosis and extracellular matrix deposition after spinal cord injury in mice. Regeneration of raphespinal and corticospinal tract axons was enhanced and sensorimotor function recovery improved following spinal cord injury in animals with attenuated pericyte-derived scarring. Using optogenetic stimulation, we demonstrate that regenerated corticospinal tract axons integrated into the local spinal cord circuitry below the lesion site. The number of regenerated axons correlated with improved sensorimotor function recovery. In conclusion, attenuation of pericyte-derived fibrosis represents a promising therapeutic approach to facilitate recovery following CNS injury.