Nearly 30% of patients with mesial temporal lobe epilepsy (TLE) are resistant to treatment with antiepileptic drugs. Neural stem cell (NSC) grafting into the hippocampus could offer an alternative therapy to hippocampal resection in these patients. As TLE is associated with reduced numbers of inhibitory gamma-amino butyric acid (GABA)-ergic interneurons and astrocytes expressing the anticonvulsant glial-derived neurotrophic factor (GDNF) in the hippocampus, we tested the hypothesis that grafting of NSCs that are capable of adding new GABA-ergic interneurons and GDNF-expressing astrocytes into the epileptic hippocampus restrains spontaneous recurrent motor seizures (SRMS) in chronic TLE. We grafted NSCs expanded in vitro from embryonic medial ganglionic eminence (MGE) into hippocampi of adult rats exhibiting chronic TLE with cognitive impairments. NSC grafting reduced frequencies of SRMS by 43% and stage V seizures by 90%. The duration of individual SRMS and the total time spent in seizures were reduced by 51 and 74%, respectively. Grafting did not improve the cognitive function however. Graft-derived cells (equivalent to approximately 28% of injected cells) were observed in various layers of the epileptic hippocampus where they differentiated into NeuN+ neurons (13%), S-100beta+ astrocytes (57%), and NG2+ oligodendrocyte-progenitors (3%). Furthermore, among graft-derived cells, 10% expressed GABA and 50% expressed GDNF. Additionally, NSC grafting restored GDNF in a vast majority of the hippocampal astrocytes but had no effect on neurogenesis. Thus, MGE-NSC therapy is efficacious for diminishing SRMS in chronic TLE. Addition of new GABA-ergic neurons and GDNF+ cells, and restoration of GDNF in the hippocampal astrocytes may underlie the therapeutic effect of MGE-NSC grafts.