Immunosuppressive ability in human MSC donors has been shown to be variable and may be a limiting factor in MSC therapeutic efficacy in vivo. The importance of cytokine activation of mesenchymal stromal cells (MSCs) to facilitate their immunosuppressive function is well established. This study sought to further understand the interactions between MSCs and the commonly used calcineurin inhibitor cyclosporine A (CsA). The existing literature regarding approaches that use MSCs and cyclosporine are conflicting regarding the effect of CsA on MSC potency and function. Here, we clearly demonstrate that when added at the same time as MSCs, CsA negatively affects MSC suppression of T cell proliferation. However, licencing MSCs with IFNγ before addition of CsA protects MSCs from this negative effect. Notably, adding CsA to MSCs after IFNγ pre-stimulation enhances MSC production of IDO. Mechanistically, we identified that CsA reduces SOCS1 expression to facilitate enhanced IDO production in IFNγ pre-stimulated MSCs. Importantly, CsA exposure to IFNγ pre-stimulated MSC before administration, significantly enhanced the potency of MSCs in a human relevant humanised mouse model of acute Graft versus Host Disease. In summary, this study identified a novel licencing strategy to enhance MSC potency in vitro and in vivo.