Human bone marrow-derived mesenchymal stem cells (MSCs) have been observed to inhibit arthritis in experimental animal models such as collagen-induced arthritis. However, the exact anti-inflammatory mechanisms remain poorly understood. Interleukin-1 receptor antagonist (IL-1Ra) is an anti-inflammatory cytokine produced by immune and stromal cells. We postulated that MSCs could produce IL-1Ra and attenuate experimental arthritis. In this study, 5x106 MSCs were injected into the peritoneal cavity of IL-1Ra knockout (IL-1RaKO) mice. MSCs reduced the severity of the arthritis by histology and decreased pro-inflammatory cytokine levels in IL-1RaKO mice. The ratio of splenic T helper 17 (Th17) cells to regulatory T cells (Treg) was significantly decreased in MSC-injected IL-1RaKO mice. Purified splenic CD4+ T cells from mice in each of the treatment groups were cultured under Th17 polarizing conditions and analyzed by flow cytometry. Less expansion of the Th17 population was observed in the MSC-treated group. Interestingly, MSCs expressed inducible IL-1Ra against inflammatory environmental stimuli. Human recombinant IL-1Ra could suppress Th17 cells differentiation under Th17 polarizing conditions. These results indicate that IL-1Ra expressed by MSCs can inhibit Th17 polarization and decrease the immune response in IL-1RaKO mice. Therefore, MSC-derived IL-1Ra may inhibit inflammation in IL-1RaKO mice via effects on Th17 differentiation.