Mesenchymal stem cell (MSC) transplantation has been explored as a new clinical approach to repair injured tissue. A growing corpus of studies have highlighted two important aspects of MSC therapy: 1) MSCs can modulate T-cell-mediated immunological responses, and systemically administered MSCs home to sites of ischemia or injury. In this review, we describe the known mechanisms of immunomodulation and homing of MSCs. First, we examine the low immunogenicity of MSCs and their antigen presentation capabilities. Next, we discuss the paracrine interactions between MSCs and innate [dendritic cells (DC)] and adaptive immune cells (T lymphocytes) with a focus on prostaglandin E₂ (PGE₂), indoleamine 2,3-dioxygenase (IDO), and toll-like receptor (TLR) signaling pathways. We transition to outline the steps of activation, rolling/adhesion, and transmigration of MSCs into target tissues during inflammatory or ischemic conditions. These aspects of MSC grafts—immunomodulation and homing—are contextualized to understand a reported side effect of MSC therapy, cancer development.