Mesenchymal stem cells (MSCs) are multipotent stem cells with unique immunomodulatory properties, making them valuable for treating chronic inflammation and autoimmune disorders. Preclinical and clinical studies have shown their potential in treating conditions such as graft-versus-host disease (GvHD) and allergic disorders. However, challenges remain, including understanding the mechanisms of MSC-based immunomodulation and improving the quality control of MSCs. MSCs can modulate the immune response through soluble factors and cell-cell contact, affecting T-cells, B-cells, regulatory T cells, and natural killer (NK) cells. Human embryonic stem cell-derived MSCs (iPSC-MSCs) show promising results in preclinical studies, offering advantages such as better engraftment and immunomodulation. Clinical trials have demonstrated the safety and efficacy of MSCs in treating GvHD, multiple sclerosis, and other immune disorders. Despite these advancements, issues such as variability in cell quality, inconsistent protocols, and varying dosages need to be addressed. Future prospects include establishing clinical-grade human iPSC-MSCs and improving the immunomodulatory effects through modification techniques. Standardized protocols and robust quality control systems are essential for the successful application of MSCs in immunomodulation therapy.Mesenchymal stem cells (MSCs) are multipotent stem cells with unique immunomodulatory properties, making them valuable for treating chronic inflammation and autoimmune disorders. Preclinical and clinical studies have shown their potential in treating conditions such as graft-versus-host disease (GvHD) and allergic disorders. However, challenges remain, including understanding the mechanisms of MSC-based immunomodulation and improving the quality control of MSCs. MSCs can modulate the immune response through soluble factors and cell-cell contact, affecting T-cells, B-cells, regulatory T cells, and natural killer (NK) cells. Human embryonic stem cell-derived MSCs (iPSC-MSCs) show promising results in preclinical studies, offering advantages such as better engraftment and immunomodulation. Clinical trials have demonstrated the safety and efficacy of MSCs in treating GvHD, multiple sclerosis, and other immune disorders. Despite these advancements, issues such as variability in cell quality, inconsistent protocols, and varying dosages need to be addressed. Future prospects include establishing clinical-grade human iPSC-MSCs and improving the immunomodulatory effects through modification techniques. Standardized protocols and robust quality control systems are essential for the successful application of MSCs in immunomodulation therapy.