Multipotent mesenchymal stem cells (MSCs) in adult tissue are known to be less immunogenic and immunosuppressive. Previous study showed that primary cultures of human adipose-derived stem cells (ADSCs) shared their immunomodulatory properties with other MSCs. However, whether passaged human ADSCs can retain their immunomodulatory effect after in vitro expansion remains unknown. In addition, the mechanism of ADSC-mediated immunomodulatory effect remains to be elucidated. This study aimed to investigate these issues by using passaged human ADSCs as an in vitro study model. Flow cytometry showed that passaged ADSCs expressed human leukocyte antigen (HLA) class I but not class II molecules, which could be induced to express to a high level with interferon-gamma (IFN-gamma) treatment. The study found that passaged ADSCs could not elicit lymphocyte proliferation after co-culturing with them, even after IFN-gamma treatment. In addition, either IFN-gamma-treated or non-treated ADSCs could inhibit phytohemagglutinin (PHA)-stimulated lymphocyte proliferation. Moreover, passaged ADSCs could serve as the third-party cells to inhibited two-way mixed lymphocyte reaction (MLR). Further study using a transwell system also showed that this type of immunosuppressive effect was not cell-cell contact dependent. In defining possible soluble factors, we found that passaged ADSCs significantly increased their secretion of prostaglandin E2 (PGE2), but not transforming growth factor-beta (TGF-beta) and hepatocyte growth factor (HGF), when they were co-cultured with MLR. Furthermore, the result demonstrated that only PGE2 production inhibitor indomethacine, but not TGF-beta- and HGF-neutralizing antibodies, could significantly counteract ADSC-mediated suppression on allogeneic lymphocyte proliferation. These results indicated that in vitro expanded ADSCs retain low immunogenicity and immunosuppressive effect, and PGE2 might be the major soluble factor involved in the in vitro inhibition of allogeneic lymphocyte reaction.