It is known that proinflammatory cytokines empower multipotent mesenchymal stromal cells (MSCs) the immunosuppressive capacity to treat various inflammatory diseases. Nevertheless, how the proinflammatory cytokines modulate the immunosuppressive capacity of MSCs is poorly understood. In the present study, we identified that the deubiquitinating enzyme ubiquitin C-terminal hydrolase 1 (UCHL1) was upregulated in MSCs upon stimulation of proinflammatory cytokines IFN-γ plus TNF-α. Interestingly, through intervening UCHL1 by shRNA knockdown or its inhibitor LDN57444 or overexpression, we found that UCHL1 played a critical role in suppressing cytokines-induced inducible nitric oxide synthase expression in murine MSCs and indoleamine 2,3-dioxygenase expression in human MSCs, thereby restrained their immunosuppressive capacity. This effect of UCHL1 was attributed to the negative role in regulating NF-κB and STAT1 signaling, as exhibited by promoting NF-κB and STAT1 activation upon inhibition of UCHL1. Besides, inhibition of UCHL1 suppressed cytokines-induced MSC apoptosis via upregulation of Bcl-2. As a consequence, UCHL1-inhibited MSCs effectively alleviated concanavalin A-induced inflammatory liver injury. Therefore, our study demonstrates a novel role of UCHL1 in regulating the immunosuppressive capacity and survival of MSCs, which further affects their immunotherapy for inflammatory diseases.