Amniotic fluid stem (AFS) cells are broadly multipotent, can be expanded extensively in culture, are not tumorigenic and can be readily cryopreserved for cell banking. Mesenchymal stem cells (MSC) show immunomodulatory activity and secrete a wide spectrum of cytokines and chemokines that suppress inflammatory responses, block mixed lymphocyte reactions (MLR) and other immune reactions, and have proven therapeutic against conditions such as graft-versus-host disease. AFS cells resemble MSCs in many respects including surface marker expression and differentiation potential. We therefore hypothesized that AFS cells may exhibit similar immunomodulatory capabilities. We present data to demonstrate that direct contact with AFS cells inhibits lymphocyte activation. In addition, we show that cell-free supernatants derived from AFS cells primed with total blood monocytes or IL-1β, a cytokine released by monocytes and essential in mediation of the inflammatory response, also inhibited lymphocyte activation. Further investigation of AFS cell-free supernatants by protein array revealed secretion of multiple factors in common with MSCs that are known to be involved in immune regulation including growth related oncogene (GRO) and monocyte chemotactic protein (MCP) family members as well as interleukin-6 (IL-6). AFS cells activated by PBMCs released several additional cytokines as compared to BM-MSCs, including macrophage inflammatory protein-3α (MIP-3α), MIP-1α and Activin. AFS cells also released higher levels of MCP-1 and lower levels of MCP-2 compared to BM-MSCs in response to IL-1β activation. This suggests that there may be some AFS-specific mechanisms of inhibition of lymphocyte activation. Our results indicate that AFS cells are able to suppress inflammatory responses in vitro and that soluble factors are an essential component in the communication between lymphocytes and AFS cells. Their extensive self-renewal capacity, possibility for banking and absence of tumorigenicity may make AFS cells a superior source of stable, well characterized "off the shelf" immunomodulatory cells for a variety of immunotherapies.