The molecular mechanisms by which mesenchymal stem cells (MSCs) suppress T-cell proliferation are poorly understood, and whether a soluble factor plays a major role remains controversial. Here we demonstrate that the T-cell–receptor complex is not a target for the suppression, suggesting that downstream signals mediate the suppression. We found that Stat5 phosphorylation in T cells is suppressed in the presence of MSCs and that nitric oxide (NO) is involved in the suppression of Stat5 phosphorylation and T-cell proliferation. The induction of inducible NO synthase (NOS) was readily detected in MSCs but not T cells, and a specific inhibitor of NOS reversed the suppression of Stat5 phosphorylation and T-cell proliferation. This production of NO in the presence of MSCs was mediated by CD4 or CD8 T cells but not by CD19 B cells. Furthermore, inhibitors of prostaglandin synthase or NOS restored the proliferation of T cells, whereas an inhibitor of indoleamine 2,3-dioxygenase and a transforming growth factor–β–neutralizing antibody had no effect. Finally, MSCs from inducible NOS^−/− mice had a reduced ability to suppress T-cell proliferation. Taken together, these results suggest that NO produced by MSCs is one of the major mediators of T-cell suppression by MSCs.