Human islet transplantation can be a permanent treatment of type 1 diabetes if the immune rejection and primary nonfunction (PNF) of transplanted islet grafts were properly addressed. In this study, we determined whether cotransplantation of human bone marrow-derived mesenchymal stem cells (hBMSCs) could prevent immune rejection and improve human islet transplantation in a humanized NOD scid gamma (NSG) mouse model. Human immunity was rebuilt and maintained in NOD.Cg-Prkdc(scid) Il2rg(tm1Wjl)/SzJ (NSG) mice up to 13 weeks after intraperitoneal injection of mature human peripheral blood mononuclear cells (PBMCs). The blood glucose control and the levels of serum insulin and c-peptide clearly indicated a better outcome of islet transplantation when islets were cotransplanted with hBMSCs. hBMSCs actively interacted with interleukin-10 (IL-10)-producing CD14+ monocytes to suppress the proliferation and activation of T cells in the PBMC/hBMSC coculture and prevent the T cell recruitment into the transplantation site. hBMSCs also increased the percentage of immunosuppressive regulatory T cells (Tregs) and prevented the cytokine-induced loss-of-function of human islets. Taken together, our studies demonstrated that transplantation of islets with hBMSCs is a promising strategy to improve the outcome of human islet transplantation.