Co-transplantation of mesenchymal stem cells (MSCs) and hematopoietic stem cells ameliorate hematopoietic reconstitution and induce tolerance. The immunomodulatory properties of MSCs have been demonstrated both in vivo and in vitro. MSCs can modulate function of immune cells such as T lymphocytes, antigen-presenting cells and natural killer cells. However, it is unknown whether MSCs given to patients that have undergone HSC transplantation could alleviate graft versus leukemia effect or could increase the risk of the infection. Proper characterization of MSC immunomodulatory mechanisms are crucial to anticipate the possible effect of MSC in the host. In the current report, interesting and contradictory results in the literature are reviewed in an attempt to understand the underlying mechanism. Differences in experimental designs and models used seem to be the underlying causes of discrepancy in reported results. Results of the few in vivo studies are controversial and further clinical studies are needed to confirm the efficiency and safety of MSCs in transplantation management.