Mesenchymal stem cell (MSC)-based cell therapy is a promising avenue for osteoarthritis (OA) treatment. In the present study, we evaluated the efficacy of intra-articular injections of culture-expanded allogenic adipose tissue-derived stem cells (ADSCs) for the treatment of anterior cruciate ligament transection (ACLT) induced rat OA model. The paracrine effects of major histocompatibility complex (MHC)-unmatched ADSCs on chondrocytes were investigated in vitro. Rats were divided into an OA group that underwent ACLT surgery and a sham-operated group that did not undergo ACLT surgery. Four weeks after surgery mild OA was induced in the OA group. Subsequently, the OA rats were randomly divided into ADSC and control groups. A single dose of 1 × 106 ADSCs suspended in 60 μL phosphate-buffered saline (PBS) was intra-articularly injected into the rats of the ADSC group. The control group received only 60 μL PBS. OA progression was evaluated macroscopically and histologically at 8 and 12 weeks after surgery. ADSC treatment did not cause any adverse local or systemic reactions. The degeneration of articular cartilage was significantly weaker in the ADSC group compared to that in the control group at both 8 and 12 weeks. Chondrocytes were co-cultured with MHC-unmatched ADSCs in trans-wells to assess the paracrine effects of ADSCs on chondrocytes. Co-culture with ADSCs counteracted the IL-1β-induced mRNA upregulation of the extracellular matrix-degrading enzymes MMP-3 and MMP-13 and the pro-inflammatory cytokines TNF-α and IL-6 in chondrocytes. Importantly, ADSCs increased the expression of the anti-inflammatory cytokine IL-10 in chondrocytes. The results of this study indicated that the intra-articular injection of culture-expanded allogenic ADSCs attenuated cartilage degeneration in an experimental rat OA model without inducing any adverse reactions. MHC-unmatched ADSCs protected chondrocytes from inflammatory factor-induced damage. The paracrine effects of ADSCs on OA chondrocytes are at least part of the mechanism by which ADSCs exert their therapeutic activity.