This study was aimed to enhance the healing potential of rat bone marrow mesenchymal stem cells against chronic diabetic wounds through interleukin-7 (IL-7) transfection. IL-7 plays an important role in wound healing and acts as a survival factor in some cell types. This study involves isolation, propagation, and characterization of mesenchymal stem cells (MSCs) and their modification with IL-7 gene via retroviral transfection. Transfected MSCs were assessed for their effect on angiogenic genes by qPCR. Wound healing potential of transfected MSCs was analyzed by scratch assay in vitro and by transplanting these cells in rat diabetic wound models in vivo. Wound area was measured for a period of 15 days and subsequent histological analysis was performed. qPCR results showed increased expression of IL-7 gene (p ≤ 0.05) and also principal angiogenic genes, vascular endothelial growth factor (VEGF), hepatocyte growth factor (HGF), VEGF receptor 1 (FLT-1), and VEGF receptor 2 (FLK-1) (p ≤ 0.05). Neuropilin-1 (NRP-1) did not show any significant change. In vitro analysis of IL-7 MSCs showed intense cell-cell connections and tube formation as compared to the normal MSCs. Rate of wound closure was more (p ≤ 0.001) in case of diabetic group transplanted with IL-7 MSCs. Histological examination revealed enhanced vascular supply in skin tissues of diabetic animals transplanted with IL-7 transfected MSCs as compared to normal MSCs. Immunohistochemical results showed significantly higher expression of IL-7 (p ≤ 0.001) and α-smooth muscle actin(p ≤ 0.001) in the tissue sections of IL-7 transfected group as compared to normal MSCs and the diabetic control group; the latter indicates increase in the number of blood vessels. It is concluded from this study that IL-7 overexpression in MSCs can enhance the healing potential of MSCs and aid in wound closure in diabetic animals through the induction of angiogenic genes.