Multiple sclerosis (MS) is an inflammatory and demyelinating disease of the central nervous system (CNS). Mesenchymal stem cells (MSC) have been shown to ameliorate symptoms in experimental autoimmune encephalomyelitis (EAE), a model of MS. Using cloned MSC labeled with clinically approved small particles of iron oxide (SPIO) for treatment of EAE we analyzed the tissue localization of transferred cells. Treatment with unlabeled MSC led to disease amelioration compared to controls. In contrast, treatment with SPIO-labeled MSC lead to increase in disease severity. Treatment with SPIO alone did not alter disease course. After transplantation labeled and nonlabeled MSC were detected in the CNS and the liver with significantly more SPIO-labeled cells present in the CNS. Iron deposition was present in the group treated with SPIO-labeled MSC, indicating that in vivo the initially cell surface-bound iron detached from the MSC. These results could be of great importance for imaging of patients in the clinical setting, indicating that in vivo application of SPIO-labeled MSC needs to be performed with caution because the cell-derived exposure of iron can lead to disease aggravation.