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Abstract Backgrounds Allergic airway inflammation is prevalent worldwide and imposes a considerable burden on both society and affected individuals. This study aimed to investigate the therapeutic advantages of mesenchymal stem cells (MSCs) overexpressed interleukin-10 (IL-10) for the treatment of allergic airway inflammation, as both IL-10 and MSCs possess immunosuppressive properties. Methods Induced pluripotent stem cell (iPSC)-derived MSCs were engineered to overexpress IL-10 via lentiviral transfection (designated as IL-10-MSCs). MSCs and IL-10-MSCs were administered intravenously to mice with allergic inflammation induced by ovalbumin (OVA), and the features of allergic inflammation including inflammatory cell infiltration, Th cells in the lungs, and T helper 2 cell (Th2) cytokine levels in bronchoalveolar lavage fluid (BALF) were examined. MSCs and IL-10-MSCs were co-cultured with CD4+ T cells from patients with allergic rhinitis (AR), and the levels of Th2 cells and corresponding type 2 cytokines were studied. RNA-sequence was performed to further investigate the potential effects of MSCs and IL-10-MSCs on CD4+ T cells. Results Stable IL-10-MSCs were established and characterised by high IL-10 expression. IL-10-MSCs significantly reduced inflammatory cell infiltration and epithelial goblet cell numbers in the lung tissues of mice with allergic airway inflammation. Inflammatory cell and cytokine levels in BALF also decreased after the administration of IL-10-MSCs. Moreover, IL-10-MSCs showed a stronger capacity to inhibit the levels of Th2 after co-cultured with CD4+ T cells from patients with AR. Furthermore, we elucidated lower levels of IL-5 and IL-13 in IL-10-MSCs treated CD4+ T cells, and blockade of IL-10 significantly reversed the inhibitory effects of IL-10-MSCs. We also reported the mRNA profiles of CD4+ T cells treated with IL-10-MSCs and MSCs, in which IL-10 played an important role. Conclusion IL-10-MSCs showed positive effects in the treatment of allergic airway inflammation, providing solid support for the use of genetically engineered MSCs as a potential novel therapy for allergic airway inflammation.