The intracellular second messenger cAMP is frequently used in induction media to induce mesenchymal stem cells (MSCs) into neural lineage cells. To date, an understanding of the role cAMP exerts on MSCs and whether cAMP can induce MSCs into functional neurons is still lacking. We found cAMP initiated neuron-like morphology changes early and neural differentiation much later. The early phase changes in morphology were due to cell shrinkage, which subsequently rendered some cells apoptotic. While the morphology changes occurred prior to the expression of neural markers, it is not required for neural marker expression and the two processes are differentially regulated downstream of cAMP-activated protein kinase A. cAMP enabled MSCs to gain neural marker expressions with neuronal function, such as, calcium rise in response to neuronal activators, dopamine, glutamate, and potassium chloride. However, only some of the cells induced by cAMP responded to the three neuronal activators and further lack the neuronal morphology, suggesting that although cAMP is able to direct MSCs towards neural differentiation, they do not achieve terminal differentiation.