Stem cells are emerging as therapeutic candidates in a variety of diseases because of their multipotent capacities. Among these, mesenchymal stem cells (MSCs) derived from bone marrow, umbilical cord blood or adipose tissue, comprise a population of cells that exhibit extensive proliferative potential and retain the ability to differentiate into multiple tissue-specific lineage cells including osteoblasts, chondrocytes, and adipocytes. MSCs have also been shown to enhance neurological recovery, although the therapeutic effects seem to be derived from an indirect paracrine effect rather than direct cell replacement. MSCs secrete neurotrophic factors, promote endogenous neurogenesis and angiogenesis, encourage synaptic connection and remyelination of damaged axons, decrease apoptosis, and regulate inflammation primarily through paracrine actions. Accordingly, MSCs may prevail as a promising cell source for cell-based therapy in neurological diseases.