Mesenchymal stem cells (MSCs) can become potently immunosuppressive through unknown mechanisms. We found that the immunosuppressive function of MSCs is elicited by IFNγ and the concomitant presence of any of three other proinflammatory cytokines, TNFα, IL-1α, or IL-1β. These cytokine combinations provoke the expression of high levels of several chemokines and inducible nitric oxide synthase (iNOS) by MSCs. Chemokines drive T cell migration into proximity with MSCs, where T cell responsiveness is suppressed by nitric oxide (NO). This cytokine-induced immunosuppression was absent in MSCs derived from iNOS^−/− or IFNγR1^−/− mice. Blockade of chemokine receptors also abolished the immunosuppression. Administration of wild-type MSCs, but not IFNγR1^−/− or iNOS^−/− MSCs, prevented graft-versus-host disease in mice, an effect reversed by anti-IFNγ or iNOS inhibitors. Wild-type MSCs also inhibited delayed-type hypersensitivity, while iNOS^−/− MSCs aggravated it. Therefore, proinflammatory cytokines are required to induce immunosuppression by MSCs through the concerted action of chemokines and NO.