Mesenchymal stem cells (MSCs) are emerging as a promising immunotherapeutic, based largely on their overt suppression of T lymphocytes under inflammatory and autoimmune conditions. While paracrine cross-talk between MSCs and T cells has been well-studied, an intrinsic transcriptional switch that programs MSCs for immunomodulation has remained undefined. Here we show that bone marrow-derived MSCs require the transcriptional regulator Aire to suppress T cell-mediated pathogenesis in a mouse model of chronic colitis. Surprisingly, Aire did not control MSC suppression of T cell proliferation in vitro. Instead, Aire reduced T cell mitochondrial reductase by negatively regulating a proinflammatory cytokine, early T cell activation factor (Eta)-1. Neutralization of Eta-1 enabled Aire(-/-) MSCs to ameliorate colitis, reducing the number of infiltrating effector T cells in the colon, and normalizing T cell reductase levels. We propose that Aire represents an early molecular switch imposing a suppressive MSC phenotype via regulation of Eta-1. Monitoring Aire expression in MSCs may thus be a critical parameter for clinical use.