Mesenchymal stromal cells (MSCs) participate in repair of damaged tissues, possess the potential to serve as a useful tool in the drug discovery field and exert immunosuppressive effects as demonstrated by their ability to modulate the immune response. Herein, the roles played by MSC differentiation and/or production of trophic factors involved in tissue repair are discussed. MSCs offer the opportunity to probe targets that conventional or differentiated cell lines do not express; thus providing a more refined system that allows identification of novel therapeutics. However, there are difficulties associated with drug discovery assays to which MSCs are not exempt. The immunosuppressive potential of MSCs has already been utilised in clinical trials where MSCs have been used to treat patients with graft- versus- host disease (GvHD) and autoimmune diseases. Another possible therapeutic application of MSCs lies in the field of transplantation tolerance. Although the capacity of MSCs to modulate immune responses has received much attention, the role of MSCs in transplantation tolerance is as yet unclear. In this review, we discuss the evidence for MSC induction of a state of tolerance in the transplantation setting.