Despite the poor prognosis associated with myelomeningocele (MMC), the options for prenatal treatments are still limited. Recently, fetal cellular therapy has become a new option for treating birth defects, although the therapeutic effects and mechanisms associated with such treatments remain unclear. The use of human amniotic fluid stem cells (hAFSCs) is ideal with respect to immunoreactivity and cell propagation. The prenatal diagnosis of MMC during early stages of pregnancy could allow for the ex vivo proliferation and modulation of autologous hAFSCs for use in utero stem cell therapy. Therefore, we investigated the therapeutic effects and mechanisms of hAFSCs‐based treatment for fetal MMC. hAFSCs were isolated as CD117‐positive cells from the amniotic fluid of 15‐ to 17‐week pregnant women who underwent amniocentesis for prenatal diagnosis and consented to this study. Rat dams were exposed to retinoic acid to induce fetal MMC and were subsequently injected with hAFSCs in each amniotic cavity. We measured the exposed area of the spinal cord and hepatocyte growth factor (HGF) levels at the lesion. The exposed spinal area of the hAFSC‐treated group was significantly smaller than that of the control group. Immunohistochemical analysis demonstrated a reduction in neuronal damage such as neurodegeneration and astrogliosis in the hAFSC‐treated group. Additionally, in lesions of the hAFSC‐treated group, HGF expression was upregulated and HGF‐positive hAFSCs were identified, suggesting that these cells migrated to the lesion and secreted HGF to suppress neuronal damage and induce neurogenesis. Therefore, in utero hAFSC therapy could become a novel strategy for fetal MMC. Stem Cells Translational Medicine 2019;8:1170–1179