Mesenchymal stem cell (MSC) loaded bio-scaffold transplantation is a promising therapeutic approach for bone regeneration and repair. However, growing evidence shows that pro-inflammatory mediators from injured tissues suppress osteogenic differentiation and impair bone formation. To improve MSC-based bone regeneration, it is important to understand the mechanism of inflammation mediated osteogenic suppression. In the present study, we found that synovial fluid from rheumatoid arthritis patients and pro-inflammatory cytokines including interleukin-1α, interleukin-1β, and tumor necrosis factor α, stimulated intercellular adhesion molecule-1(ICAM-1) expression and impaired osteogenic differentiation of MSCs. Interestingly, overexpression of ICAM-1 in MSCs using a genetic approach also inhibited osteogenesis. In contrast, ICAM-1 knockdown significantly reversed the osteogenic suppression. In addition, after transplanting a traceable MSC-poly(lactic-co-glycolic acid) construct in rat calvarial defects, we found that ICAM-1 suppressed MSC osteogenic differentiation and matrix mineralization in vivo. Mechanistically, we found that ICAM-1 enhances MSC proliferation but causes stem cell marker loss. Furthermore, overexpression of ICAM-1 stably activated the MAPK and NF-κB pathways but suppressed the PI3K/AKT pathway in MSCs. More importantly, specific inhibition of the ERK/MAPK and NF-κB pathways or activation of the PI3K/AKT pathway partially rescued osteogenic differentiation, while inhibition of the p38/MAPK and PI3K/AKT pathway caused more serious osteogenic suppression. In summary, our findings reveal a novel function of ICAM-1 in osteogenesis and suggest a new molecular target to improve bone regeneration and repair in inflammatory microenvironments.