Obstetric brachial plexus palsy is a devastating birth injury. While many children recover spontaneously, 20–25% are left with a permanent impairment of the affected limb. So far, concepts of pathology and recovery have focused on the injury of the peripheral nerve. Proximal nerve injury at birth, however, leads to massive injury-induced motoneuron loss in corresponding motoneuron pools and therefore limits the extent of functional recovery. In the present study, the role of spinal cord plasticity after injury and recovery from obstetric brachial plexus lesions was investigated. A selective injury to spinal roots C5 and C6 was induced in newborn Sprague–Dawley rats, leading to motoneuron loss in corresponding motoneuron pools. Recovery of extremity function was evaluated with different behavioural paradigms. Permanent changes of adjacent motoneuron pools were quantitatively evaluated by retrograde tracing and functional muscle testing. We report that the adjacent C7 motoneuron contribution to biceps muscle innervation increased four-fold after upper trunk lesions in newborns, thus compensating for the injury-induced motoneuron loss. These results indicate that, in obstetric brachial plexus palsy, changes in spinal cord architecture are an integral part not only of primary pathology but also of the subsequent recovery process. While present treatment is directed towards the restoration of neural continuity, future treatment strategies must recognize and take advantage of CNS participation in the injury and recovery process.