Mesenchymal stem cells (MSCs) are multipotent adult stem cells which have self-renewal capacity and differentiation potential into several mesenchymal lineages including bones, cartilages, adipose tissues and tendons. MSCs may repair tissue injuries and prevent immune cell activation and proliferation. Immunomodulation and secretion of growth factors by MSCs have led to realizing the true potential of MSC-based cell therapy. The use of MSCs as immunomodulators has been explored in cell/organ transplant, tissue repair, autoimmune diseases, and prevention of graft vs host disease (GVHD). This review focuses on the clinical applications of MSC-based cell therapy, with particular emphasis on islet transplantation for treating type I diabetes.