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BACKGROUND Mesenchymal stem cells (MSCs) are an attractive tool to treat graft-versus-host disease because of their unique immunoregulatory properties. Although human bone marrow-derived MSCs (BM-MSCs) were the most widely used MSCs in cell therapy until recently, MSCs derived from human umbilical cords (UC-MSCs) have gained popularity as cell therapy material for their ethical and noninvasive collection. AIM To investigate the difference in mechanisms of the immunosuppressive effects of UC-MSCs and BM-MSCs. METHODS To analyze soluble factors expressed by MSCs, such as indolamine 2,3-dioxygenase, cyclooxygenase-2, prostaglandin E2 and interleukin (IL)-6, inflammatory environments in vitro were reconstituted with combinations of interferon-gamma (IFN-γ), tumor necrosis factor alpha and IL-1β or with IFN-γ alone. Activated T cells were cocultured with MSCs treated with indomethacin and/or anti-IL-10. To assess the ability of MSCs to inhibit T helper 17 cells and induce regulatory T cells, induced T helper 17 cells were cocultured with MSCs treated with indomethacin or anti-IL-10. Xenogeneic graft-versus-host disease was induced in NOG mice (NOD/Shi-scid/IL-2Rγnull) and UC-MSCs or BM-MSCs were treated as cell therapies. RESULTS Our data demonstrated that BM-MSCs and UC-MSCs shared similar phenotypic characteristics and immunomodulation abilities. BM-MSCs expressed more indolamine 2,3-dioxygenase after cytokine stimulation with different combinations of IFN-γ, tumor necrosis factor alpha-α and IL-1β or IFN-γ alone. UC-MSCs expressed more prostaglandin E2, IL-6, programmed death-ligand 1 and 2 in the in vitro inflammatory environment. Cyclooxygenase-2 and IL-10 were key factors in the immunomodulatory mechanisms of both MSCs. In addition, UC-MSCs inhibited more T helper 17 cells and induced more regulatory T cells than BM-MSCs. UC-MSCs and BM-MSCs exhibited similar effects on attenuating graft-versus-host disease. CONCLUSION UC-MSCs and BM-MSCs exert similar immunosuppressive effects with different mechanisms involved. These findings suggest that UC-MSCs have distinct immunoregulatory functions and may substitute BM-MBSCs in the field of cell therapy.