A complex cellular cascade characterizes the pathophysiological response following spinal cord injury (SCI) limiting regeneration. Biomaterial and stem cell combination therapies together have shown synergistic effects, compared to the independent benefits of each intervention, and represent a promising approach towards regaining function after injury. In this study, we combine our polyethylene glycol (PEG) cell delivery platform with lentiviral-mediated overexpression of the anti-inflammatory cytokine interleukin (IL)-10 to improve mouse embryonic Day 14 (E14) spinal progenitor transplant survival. Immediately following injury in a mouse SCI hemisection model, five PEG tubes were implanted followed by direct injection into the tubes of lentivirus encoding for IL-10. Two weeks after tube implantation, mouse E14 spinal progenitors were injected directly into the integrated tubes, which served as a soft substrate for cell transplantation. Together, the tubes with the IL-10 encoding lentivirus improved E14 spinal progenitor survival, assessed at 2 weeks posttransplantation (4 weeks postinjury). On average, 8.1% of E14 spinal progenitors survived in mice receiving IL-10 lentivirus-laden tubes compared with 0.7% in mice receiving transplants without tubes, an 11.5-fold difference. Surviving E14 spinal progenitors gave rise to neurons when injected into tubes. Axon elongation and remyelination were observed, in addition to a significant increase in functional recovery in mice receiving IL-10 lentivirus-laden tubes with E14 spinal progenitor delivery compared to the injury only control by 4 weeks postinjury. All other conditions did not exhibit increased stepping until 8 or 12 weeks postinjury. This system affords increased control over the transplantation microenvironment, offering the potential to improve stem cell-mediated tissue regeneration.