It has been shown that mesenchymal stem cells (MSCs) induce T cells to become unresponsive. We characterized the phenotype of these T cells by dissecting the effect of MSCs on T-cell activation, proliferation, and effector function. For this purpose, an in vitro murine model was used in which T-cell responses were generated against the male HY minor histocompatibility antigen. In the presence of MSCs, the expression of early activation markers CD25 and CD69 was unaffected but interferon-gamma (IFN-gamma) production was reduced. The inhibitory effect of MSCs was directed mainly at the level of cell proliferation. Analysis of the cell cycle showed that T cells, stimulated in the presence of MSCs, were arrested at the G1 phase. At the molecular level, cyclin D2 expression was profoundly inhibited, whereas p27(kip1) was up-regulated. When MSCs were removed from the cultures and restimulated with the cognate peptide, T cells produced IFN-gamma but failed to proliferate. The addition of exogenous interleukin-2 (IL-2) did not restore proliferation. MSCs did not preferentially target any T-cell subset, and the inhibition was also extended to B cells. MSC-mediated inhibition induces an unresponsive T-cell profile that is fully consistent with that observed in division arrest anergy.