In murine allogeneic transplantation models, ICOS gene-transduced bone marrow-derived mesenchymal stem cells (MSCs(ICOS-EGFP)) were evaluated for their effects on GvHD severity and long-term survival. Lethally irradiated BALB/c or first filial generation of BALB/c and C57BL/6 (CB6F1) mice were transplanted with bone marrow cells and splenocytes from C57BL/6 mice to establish acute GvHD models. Recipient mice were injected with MSCs(ICOS-EGFP), MSCs, MSCs(EGFP), ICOS-Ig fusion protein, MSCs + ICOS-Ig, or PBS (control group). Long-term survival, GvHD rates and severity, CD4(+) T-cell apoptosis and proliferation, and Th1/Th2/Th17 effecter cell polarization were evaluated. In the C57BL/6 → CB6F1 HSCT model, the long-term survival in the MSC(ICOS-EGFP) group was higher than that in the GvHD group (74.29 ± 7.39% vs. 0, p < 0.01), and this survival rate was also higher than that in the MSC, ICOS-Ig, or MSC + ICOS-Ig groups (42.86 ± 8.36%, p = 0.004; 48.57 ± 8.45%, p = 0.03; or 50.43 ± 8.45% p = 0.04, respectively). The survival advantages of MSC(ICOS-EGFP)-treated group were confirmed in the C57BL/6 → BALB/c HSCT model. In both HSCT models, the low mortality in the MSC(ICOS-EGFP) group was associated with lower incidence and severity of acute GvHD. Treatment with MSCs(ICOS-EGFP) induced more CD4(+) T-cell apoptosis compared with that in the GvHD group. The effect on CD4(+) T cells was shown as early as day 2 and maintained until day 14 (p < 0.05 on days 2, 3, 7, and 14). Furthermore, we demonstrated that MSCs(ICOS-EGFP) were able to suppress Th1 and Th17 polarization and promote Th2 polarization on both protein expression and gene transcription levels. Higher serum levels of IL-4, IL-10, and lower levels of IFN-γ, IL-2, IL-12, and IL-17A were detected in the MSC(ICOS-EGFP) group. The MSCs(ICOS-EGFP) could also induce GATA-3, STAT6 expression and inhibit T-bet, STAT4, ROR-γt expression. Our results showed that injection of MSCs(ICOS-EGFP) is a promising strategy for acute GvHD prevention and treatment. It provides synergistic benefits of MSC immune modulation and ICOS-B7h pathway blockage.