Contusive spinal cord injury leads to a variety of disabilities owing to limited neuronal regeneration and functional plasticity. It is well established that an upregulation of glial-derived chondroitin sulphate proteoglycans (CSPGs) within the glial scar and perineuronal net creates a barrier to axonal regrowth and sprouting. Protein tyrosine phosphatase σ (PTPσ), along with its sister phosphatase leukocyte common antigen-related (LAR) and the nogo receptors 1 and 3 (NgR), have recently been identified as receptors for the inhibitory glycosylated side chains of CSPGs. Here we find in rats that PTPσ has a critical role in converting growth cones into a dystrophic state by tightly stabilizing them within CSPG-rich substrates. We generated a membrane-permeable peptide mimetic of the PTPσ wedge domain that binds to PTPσ and relieves CSPG-mediated inhibition. Systemic delivery of this peptide over weeks restored substantial serotonergic innervation to the spinal cord below the level of injury and facilitated functional recovery of both locomotor and urinary systems. Our results add a new layer of understanding to the critical role of PTPσ in mediating the growth-inhibited state of neurons due to CSPGs within the injured adult spinal cord.