Significant progress has been made in stem cell biology, regenerative medicine, and stem cell-based tissue engineering. Such scientific strides highlight the potential of replacing or repairing damaged tissues in congenital abnormalities, diseases, or injuries, as well as constructing functional tissue or organs in vivo. Since mesenchymal stem cells (MSCs) are capable of differentiating into bone-forming cells, they constitute an appropriate cell source to repair damaged bone tissues. In addition, the immunoregulatory property of MSCs provides a foundation for their use in treating a variety of autoimmune diseases. However, the interaction between MSCs and immune cells in cell-based tissue regeneration is largely unknown. In this review, we will discuss the current understanding of MSC-based tissue regeneration, emphasizing the role of the immune microenvironment in bone regeneration.