Mesenchymal stem cell (MSC) therapy is an emerging field of regenerative medicine; however, it is often unclear how these cells mediate repair. Here, we investigated the use of MSCs in the treatment of intestinal disease and modeled abnormal repair by creating focal wounds in the colonic mucosa of prostaglandin-deficient mice. These wounds developed into ulcers that infiltrated the outer intestinal wall. We determined that penetrating ulcer formation in this model resulted from increased hypoxia and smooth muscle wall necrosis. Prostaglandin I2 (PGI2) stimulated VEGF-dependent angiogenesis to prevent penetrating ulcers. Treatment of mucosally injured WT mice with a VEGFR inhibitor resulted in the development of penetrating ulcers, further demonstrating that VEGF is critical for mucosal repair. We next used this model to address the role of transplanted colonic MSCs (cMSCs) in intestinal repair. Compared with intravenously injected cMSCs, mucosally injected cMSCs more effectively prevented the development of penetrating ulcers, as they were more efficiently recruited to colonic wounds. Importantly, mucosally injected cMSCs stimulated angiogenesis in a VEGF-dependent manner. Together, our results reveal that penetrating ulcer formation results from a reduction of local angiogenesis and targeted injection of MSCs can optimize transplantation therapy. Moreover, local MSC injection has potential for treating diseases with features of abnormal angiogenesis and repair.