Previously, we described the safety and therapeutic potential of neurospheres (NSs) derived from a human induced pluripotent stem cell (iPSC) clone, 201B7, in a spinal cord injury (SCI) mouse model. However, several safety issues concerning iPSC-based cell therapy remain unresolved. Here, we investigated another iPSC clone, 253G1, that we established by transducing OCT4, SOX2, and KLF4 into adult human dermal fibroblasts collected from the same donor who provided the 201B7 clone. The grafted 253G1-NSs survived, differentiated into three neural lineages, and promoted functional recovery accompanied by stimulated synapse formation 47 days after transplantation. However, long-term observation (for up to 103 days) revealed deteriorated motor function accompanied by tumor formation. The tumors consisted of Nestin+ undifferentiated neural cells and exhibited activation of the OCT4 transgene. Transcriptome analysis revealed that a heightened mesenchymal transition may have contributed to the progression of tumors derived from grafted cells.