Mesenchymal stem cells (MSCs) are mostly found around the vasculature system of the adult bone marrow (BM). They function as immune suppressors, express MHC-II, are phagocytic, and support T-cell cytotoxicity. We hypothesize that these contradictory properties of MSCs are important for BM homeostasis and occur partly through antigen presentation (antigen-presenting cells [APCs]) within a narrow window. Indeed, we have verified APC functions of MSCs to recall antigens, Candida albicans and Tetanus toxoid. The target cells have been identified to be CD4(+) T cells. APC assays with IFNgamma-knockdown MSCs and with anti-IFNgamma receptor confirmed that MHC-II expression requires autocrine stimulation by IFNgamma. During APC functions, as IFNgamma levels become elevated, there was a concomitant decrease in MHC-II on MSCs. This observation was correlated with flow cytometry studies showing a gradual decrease in MHC-II expression as IFNgamma levels were increased. The reduced levels of MHC-II correlated with losses in their allogeneic potential, as indicated in mixed lymphocyte reaction. In summary, endogenous and low levels of IFNgamma are required for MHC-II expression on MSCs, and for APC functions. APC functions occur during a narrow window before IFNgamma levels are increased. The study has implications for BM protection against infection and exacerbated inflammatory responses.