Adult bone marrow-derived mesenchymal stem cells (MSCs) are multipotent cells that are the subject of intense investigation in regenerative medicine. In addition, MSCs possess immunomodulatory properties with therapeutic potential to prevent graft-versus-host disease (GvHD) in allogeneic hematopoietic cell transplantation. Indeed, MSCs can inhibit natural killer (NK) function, modulate dendritic cell maturation, and suppress allogeneic T-cell response. Here, we report that the nonclassic human leukocyte antigen (HLA) class I molecule HLA-G is responsible for the immunomodulatory properties of MSCs. Our data show that MSCs secrete the soluble isoform HLA-G5 and that such secretion is interleukin-10-dependent. Moreover, cell contact between MSCs and allostimulated T cells is required to obtain a full HLA-G5 secretion and, as consequence, a full immunomodulation from MSCs. Blocking experiments using neutralizing anti-HLA-G antibody demonstrate that HLA-G5 contributes first to the suppression of allogeneic T-cell proliferation and then to the expansion of CD4+CD25highFOXP3+ regulatory T cells. Furthermore, we demonstrate that in addition to their action on the adaptive immune system, MSCs, through HLA-G5, affect innate immunity by inhibiting both NK cell-mediated cytolysis and interferon-γ secretion. Our results provide evidence that HLA-G5 secreted by MSCs is critical to the suppressive functions of MSCs and should contribute to improving clinical therapeutic trials that use MSCs to prevent GvHD.Disclosure of potential conflicts of interest is found at the end of this article.