Extensive in vitro studies have shown that multipotent mesenchymal stromal cells (MSC) can exert profound immunosuppressive effects via modulation of both cellular and innate immune pathways. Their ability to be readily isolated from a number of tissues and expanded ex vivo makes them attractive candidates for systemic immunosuppressive therapy. In this article, we will review recent experimental data on the mechanisms by which MSC inhibit the alloproliferative response and the clinical relevance for their potential use in hematopoietic stem cell transplantation, solid organ transplantation, and treatment of autoimmune diseases. While in vitro data consistently demonstrate the immunosuppressive capability of MSC, current studies in animals and humans suggest that MSC are less effective in producing systemic immunosuppression. Further mechanistic studies and randomized controlled trials using standardized cell populations are needed to define the optimal conditions for the use of MSC as immunotherapy.