Our previous studies consistently demonstrate enhanced neural protective effects of cord blood in comparison to stem cells from adult marrow. Similarly, cord blood possesses diminished immuno-stimulatory activity, and the basis of this effect has not been defined. Since neural damage may be potentiated by immune activation of inflammatory cascades, we examined the effects of cord blood-derived MSCs (mesenchymal stem cells) on immune responses. We isolated and characterized a population of cord blood MSCs. These cells maintained their pluripotency in culture. Progeny generated in the absence of differentiation were strongly adherent, did not express CD34, CD45, CD3, CD19 antigens, and did not generate hematopoietic colonies in methylcellulose. However, cultured cord blood MSCs possessed a remarkable ability to support the proliferation as well as the differentiation of hematopoietic cells in vitro. In addition, supernatants from cultured cord blood MSCs promoted survival of peripheral blood mononuclear cells cultured under conditions designed to induce cell stress and limit protein synthesis. We examined immune modulation by cord blood MSCs after co-culture with murine splenocytes. While spleen cells from normal C57Bl/6 mice exhibited a prominent IgM response after immunization with the T-cell dependent antigen, SRBCs, this response was significantly decreased after incubation with cord blood MSCs. Consistently, cord blood MSCs mitigated the enhanced mixed lymphocyte proliferative response C57Bl/6 T-cells exhibit when exposed to lymphocytes from non-related animals. To investigate whether these immune suppressive properties could be therapeutically useful in a transplantation model for autoimmune disease, cord blood MSCs were transplanted into sublethally irradiated BXSB mouse model for systemic lupus. Thirty days after infusion, defective IgM humoral immune responses of splenocytes of these mice normalized. This normalization paralleled normalization of the disrupted lymphoid cellularity observed in the spleens of diseased animals. Our results are consistent with the hypothesis that immune regulation is involved in the therapeutic utility of MSCs.