Rheumatoid arthritis (RA) is a long-lasting intractable autoimmune disorder, which has become a substantial public health problem. Despite widespread use of biologic drugs, there have been uncertainties in efficacy and long-term safety. Mesenchymal stem cells (MSCs) have been suggested as a promising alternative for the treatment of RA because of their immunomodulatory properties. However, the precise mechanisms of MSCs on RA-related immune cells are not fully elucidated. The aim of this study was to investigate the therapeutic potential of human umbilical cord blood-derived MSCs (hUCB-MSCs) as a new therapeutic strategy for patients with RA and to explore the mechanisms underlying hUCB-MSC-mediated immunomodulation. Mice with collagen-induced arthritis (CIA) were administered with hUCB-MSCs after the onset of disease, and therapeutic efficacy was assessed. Systemic delivery of hUCB-MSCs significantly ameliorated the severity of CIA to a similar extent observed in the etanercept-treated group. hUCB-MSCs exerted this therapeutic effect by regulating macrophage function. To verify the regulatory effects of hUCB-MSCs on macrophages, macrophages were co-cultured with hUCB-MSCs. The tumor necrosis factor (TNF)-α-mediated activation of cyclooxygenase-2 and TNF-stimulated gene/protein 6 in hUCB-MSCs polarized naive macrophages toward an M2 phenotype. In addition, hUCB-MSCs down-regulated the activation of nucleotide-binding domain and leucine-rich repeat pyrin 3 inflammasome via a paracrine loop of interleukin-1β signaling. These immune-balancing effects of hUCB-MSCs were reproducible in co-culture experiments using peripheral blood mononuclear cells from patients with active RA. hUCB-MSCs can simultaneously regulate multiple cytokine pathways in response to pro-inflammatory cytokines elevated in RA microenvironment, suggesting that treatment with hUCB-MSCs could be an attractive candidate for patients with treatment-refractory RA.