Damage to respiratory neural circuitry and consequent loss of diaphragm function is a major cause of morbidity and mortality following cervical spinal cord injury (SCI). Upon SCI, inspiratory signals originating in the medullary rostral ventral respiratory group (rVRG) become disrupted from their phrenic motor neuron (PhMN) targets, resulting in diaphragm paralysis. Limited growth of both damaged and spared axon populations occurs following CNS trauma due, in part, to expression of various growth inhibitory molecules, some that act through direct interaction with the protein tyrosine phosphatase sigma (PTP) receptor located on axons. In the rat model of C2 hemisection SCI, we aimed to block PTP signaling to investigate potential mechanisms of axon plasticity and respiratory recovery using a small molecule peptide mimetic that inhibits PTP. The peptide was soaked into a biocompatible gelfoam and placed directly over the injury site immediately following hemisection and replaced with a freshly-soaked piece one week post-SCI. At 8 weeks post-hemisection, PTP peptide significantly improved ipsilateral hemi-diaphragm function, as assessed in vivo with electromyography (EMG) recordings. PTP peptide did not promote regeneration of axotomized rVRG fibers originating in ipsilateral medulla, as assessed by tracing following AAV2-mCherry injection into the rVRG. Conversely, PTP peptide stimulated robust sprouting of contralateral-originating rVRG fibers and serotonergic axons within the PhMN pool ipsilateral to hemisection. Furthermore, re-lesion through the hemisection did not compromise diaphragm recovery, suggesting that PTP peptide-induced restoration of function was due to plasticity of spared axon pathways descending in contralateral spinal cord. These data demonstrate that inhibition of PTP signaling can promote significant recovery of diaphragm function following SCI by stimulating plasticity of critical axon populations spared by the injury and consequently enhancing descending excitatory input to PhMNs.