Mesenchymal stem cells (MSCs) have emerged as a therapeutic approach in a range of medical fields, including regenerative medicine, cancer, autoimmune diseases, and inflammatory diseases, because of their unique properties of tissue repair and major histocompatibility complex-unmatched immunosuppression. Because both in vitro and in vivo findings demonstrate that MSCs possess potent immunoregulatory functions, there has been increasing interest in the role of MSCs in allogeneic hematopoietic stem cell transplantation, especially in the prevention and treatment of graft-versus-host disease (GVHD). GVHD is a major cause of transplantation-related mortality, and conventional immunosuppressants frequently fail to treat patients suffering from GVHD. Following Ringden's pilot study that used third-party MSCs to treat a steroid-refractory GVHD patient, MSCs have created growing interest as a therapeutic agent for GVHD. There have been further studies which demonstrated the potentials of MSC treatment in steroid-refractory GVHD, de novo GVHD, and also GVHD prevention. However, MSCs still present limitations. The need for MSCs to be "licensed" in a pro-inflammatory environment, especially in the presence of interferon gamma, allows only a narrow window for their administration. Thus, their effects have been less clear as a preventive measure before the inflammatory environment of GVHD is established and also when administered during a chronic setting where MSCs may be alternatively licensed. In this review, we focus on the immunomodulatory properties of MSCs and their effects in relation to GVHD. Given the efficacy of MSCs in murine models of GVHD and their safety in clinical trials, it is crucial that larger clinical trials are conducted and further modifications are investigated.