Mesenchymal stem cells (MSCs) inhibit the proliferation of allo-activated lymphocytes. This effect is primarily dependent on the secretion of anti-inflammatory factors by MSCs and is enhanced under inflammatory conditions. MSCs, however, also produce factors that can potentially activate resting immune cells. Full understanding of the behavior of MSCs under inflammatory and noninflammatory conditions is crucial when clinical application of MSCs is considered. Human adipose tissue-derived MSCs were cultured with nonactivated peripheral blood mononuclear cells (PBMCs) and the activation, proliferation, and function of PBMCs were examined. Seven days of coculture with autologous or allogeneic MSCs significantly increased the proliferation of PBMCs (3-fold). This effect was observed in both direct and transwell coculture systems. MSCs cocultured with PBMCs showed increased mRNA expression of the proinflammatory mediators interleukin-6 (IL-6), IL-8, tumor necrosis factor-α, the growth factors basic fibroblast growth factor and vascular endothelial growth factor-α, and the anti-inflammatory factor indoleamine 2,3-dioxygenase. After removal of MSCs, PBMCs showed a spectacular further increase in proliferation, with a maximum of 25-fold after 7 days. This increase in proliferation was not seen when PBMCs were kept in the presence of MSCs. The proliferating fraction of PBMCs largely consisted of CD4(+) T-cells with high CD25 expression and the proportion of CD127(neg)FoxP3(+) regulatory T-cells significantly increased from 5.0% to 8.5% of total CD4(+) T-cells. The expanded T-cells demonstrated normal responses to mitogen or alloantigen stimulation. The CD25(positive) fraction of these cells had immunosuppressive capacity. In conclusion, MSCs can stimulate the activation and proliferation of resting T-cells and generate regulatory T-cells. These findings are important when MSCs are applied in the clinic.