Spinal cord injury (SCI) interrupts long-projecting descending spinal neurons and disrupts the spinal central pattern generator (CPG) that controls locomotion. The intrinsic mechanisms underlying re-wiring of spinal neural circuits and recovery of locomotion after SCI are unclear. Zebrafish shows axonal regeneration and functional recovery after SCI making it a robust model to study mechanisms of regeneration. Here, we use a two-cut SCI model to investigate whether recovery of locomotion can occur independently of supraspinal connections. Using this injury model, we show that injury induces the localization of a specialized group of intraspinal serotonergic neurons (ISNs), with distinctive molecular and cellular properties, at the injury site. This subpopulation of ISNs have hyperactive terminal varicosities constantly releasing serotonin activating 5-HT1B receptors, resulting in axonal regrowth of spinal interneurons. Axon regrowth of excitatory interneurons is more pronounced compared to inhibitory interneurons. Knock-out of htr1b prevents axon regrowth of spinal excitatory interneurons, negatively affecting coordination of rostral-caudal body movements and restoration of locomotor function. On the other hand, treatment with 5-HT1B receptor agonizts promotes functional recovery following SCI. In summary, our data show an intraspinal mechanism where a subpopulation of ISNs stimulates axonal regrowth resulting in improved recovery of locomotor functions following SCI in zebrafish.