Bone marrow-derived mesenchymal stem cells (MSCs) are promising candidate cells for therapeutic application in autoimmune diseases due to their immunomodulatory properties. Unused human umbilical cords (UC) offer an abundant and noninvasive source of MSCs without ethical issues and are emerging as a valuable alternative to bone marrow tissue for producing MSCs. We thus investigated the immunomodulation effect of umbilical cord-derived MSCs (UC-MSCs) on human peripheral blood mononuclear cells (PBMCs), T cells in particular, in a co-culture system. We found that UC-MSCs efficiently suppressed the proliferation of phytohaemagglutinin (PHA)-stimulated PBMCs (p<0.01). Kinetic analysis revealed that UC-MSCs primarily inhibited the division of generation 3 (G3) and 4 (G4) of PBMCs. In addition, UC-MSCs augmented the expression of CD127(+) and CD45RA(+) but reduced the expression of CD25(+) in PBMCs stimulated by PHA (p<0.05). Furthermore, UC-MSCs inhibited PHA-resulted increase in the frequency of CD4(+)CD25(+)CD127(low/-) Tregs significantly (p<0.01) but augmented PHA-resulted increase in the frequency of CD4(+)CD25(high)CD45RA(+) Tregs to about three times in PBMCs. The levels of anti-inflammatory cytokines, PEG2, TGF-β, and IL-10 were greatly up-regulated, accompanied by a significant down-regulation of pro-inflammatory IFN-γ in the co-culture (p<0.01). Our results showed that UC-MSCs are able to suppress mitogen-induced PBMC activation and proliferation in vitro by altering T lymphocyte phenotypes, increasing the frequency of CD4(+)CD25(high)CD45RA(+) Tregs, and modulating the associated cytokine production. Further studies are warranted to investigate the therapeutic potential of UC-MSCs in immunologically-diseased conditions.