Mesenchymal stem cells (MSCs) have been isolated from a variety of tissues, such as bone marrow, skeletal muscle, dental pulp, bone, umbilical cord and adipose tissue. MSCs are used in regenerative medicine mainly based on their capacity to differentiate into specific cell types and also as bioreactors of soluble factors that will promote tissue regeneration from the damaged tissue cellular progenitors. In addition to these regenerative properties, MSCs hold an immunoregulatory capacity, and elicit immunosuppressive effects in a number of situations. Not only are they immunoprivileged cells, due to the low expression of class II Major Histocompatibilty Complex (MHC-II) and costimulatory molecules in their cell surface, but they also interfere with different pathways of the immune response by means of direct cell-to-cell interactions and soluble factor secretion. In vitro, MSCs inhibit cell proliferation of T cells, B-cells, natural killer cells (NK) and dendritic cells (DC), producing what is known as division arrest anergy. Moreover, MSCs can stop a variety of immune cell functions: cytokine secretion and cytotoxicity of T and NK cells; B cell maturation and antibody secretion; DC maturation and activation; as well as antigen presentation. It is thought that MSCs need to be activated to exert their immunomodulation skills. In this scenario, an inflammatory environment seems to be necessary to promote their effect and some inflammation-related molecules such as tumor necrosis factor-α and interferon-γ might be implicated. It has been observed that MSCs recruit T-regulatory lymphocytes (Tregs) to both lymphoid organs and graft. There is great controversy concerning the mechanisms and molecules involved in the immunosuppressive effect of MSCs. Prostaglandin E2, transforming growth factor-β, interleukins- 6 and 10, human leukocyte antigen-G5, matrix metalloproteinases, indoleamine-2,3-dioxygenase and nitric oxide are all candidates under investigation. In vivo studies have shown many discrepancies regarding the immunomodulatory properties of MSCs. These studies have been designed to test the efficacy of MSC therapy in two different immune settings: the prevention or treatment of allograft rejection episodes, and the ability to suppress abnormal immune response in autoimmune and inflammatory diseases. Preclinical studies have been conducted in rodents, rabbits and baboon monkeys among others for bone marrow, skin, heart, and corneal transplantation, graft versus host disease, hepatic and renal failure, lung injury, multiple sclerosis, rheumatoid arthritis, diabetes and lupus diseases. Preliminary results from some of these studies have led to human clinical trials that are currently being carried out. These include treatment of autoimmune diseases such as Crohn's disease, ulcerative colitis, multiple sclerosis and type 1 diabetes mellitus; prevention of allograft rejection and enhancement of the survival of bone marrow and kidney grafts; and treatment of resistant graft versus host disease. We will try to shed light on all these studies, and analyze why the results are so contradictory.