Murine mesenchymal stem cells (MSC) have the ability to inhibit allogeneic immune responses. Two different mechanisms, either cell contactdependent or independent, have been proposed to account for this immunosuppression. The focus of this study was to elucidate the involvement of soluble suppressive factors secreted by murine MSC in an inflammatory setting, and their role in MSC immunomodulation. In a non-inflammatory environment, bone marrow derived murine MSC constitutively expressed low levels of COX-2, PGE-2, TGF-x1 and HGF, but not IL-10, PD-1, PD-L1 or PD-L2. These MSC were able to significantly reduce alloantigen driven proliferation in mixed lymphocyte reactions as well as mitogen driven proliferation. The pro-inflammatory cytokines IFN-y and TNF-x did not ablate MSC mediated immunosuppression. MSC expression of PGE-2, IDO and PD-L1 was differentially regulated by these cytokines. COX-2 and PGE-2 expression by MSC were upregulated by both IFN-y and TNF-x, and using a biochemical inhibitor this was shown to have an essential, non-redundant role in modulating alloantigen-driven proliferation. However, the surface expression of PD-L1 was induced by IFN-y but not TNF-x and similarly functional IDO expression was only induced by IFN-y stimulation. Blocking studies using neutralising antibodies and biochemical antagonists revealed that while PD-L1 induction was not essential, IDO expression was a prerequisite for IFN-y mediated MSC immunomodulation. These data demonstrate that murine MSC expression of immunomodulatory factors dramatically changes in a pro-inflammatory environment and that IFN-y in particular has an important role in regulating MSC immunomodulatory factor expression.