Although mesenchymal stem cells (MSCs) are a promising cell source for regenerative medicine, ischemia-induced endoplasmic reticulum (ER) stress induces low MSC engraftment and limits their therapeutic efficacy. To overcome this, we investigated the protective effect of tauroursodeoxycholic acid (TUDCA), a bile acid, on ER stress in MSCs in vitro and in vivo. In ER stress conditions, TUDCA treatment of MSCs reduced the activation of ER stress-associated proteins, including GRP78, PERK, eIF2α, ATF4, IRE1α, JNK, p38, and CHOP. In particular, TUDCA inhibited the dissociation between GRP78 and PERK, resulting in reduced ER stress-mediated cell death. Next, to explore the ER stress protective mechanism induced by TUDCA treatment, TUDCA-mediated cellular prion protein (PrPC) activation was assessed. TUDCA treatment increased PrPC expression, which was regulated by Akt phosphorylation. Manganese-dependent superoxide dismutase (MnSOD) expression also increased significantly in response to signaling through the TUDCA-Akt axis. In a murine hindlimb ischemia model, TUDCA-treated MSC transplantation augmented the blood perfusion ratio, vessel formation, and transplanted cell survival more than untreated MSC transplantation did. Augmented functional recovery following MSC transplantation was blocked by PrPC downregulation. This study is the first to demonstrate that TUDCA protects MSCs against ER stress via Akt-dependent PrPC and Akt-MnSOD pathway.