Mesenchymal stem cells (MSCs) have been demonstrated to be anti-inflammatory against various immune disorders through several factors, including indoleamine 2,3-dioxygenase (IDO) and TNF-stimulated gene 6 (TSG-6). However, little is known about the necessity for both of these key immunosuppressive factors. Here we employed the mouse lipopolysaccharide (LPS)-induced acute lung injury (ALI) model, and found that IDO is necessary to achieve the effect of human umbilical cord-derived MSC (hUC-MSC)-based treatment on ALI. Notably, when IDO was deleted or inhibited, the expression of TSG-6 was decreased. This specific IDO-mediated regulation of TSG-6 expression was found to be exerted through its metabolite, kynurenic acid (KYNA), as inhibition of KYNA production led to decreased TSG-6 expression. Importantly, KYNA pretreatment of human MSCs enhanced their therapeutic effect on ALI. Mechanistically, KYNA activates aryl hydrocarbon receptor (AhR), which directly binds to the TSG-6 promoter to enhance TSG-6 expression. Therefore, our study has uncovered a novel link between IDO and TSG-6, and demonstrates that a metabolite of IDO controls the TSG-6-mediated anti-inflammatory therapeutic effects of human MSCs.