Mesenchymal stem cells (MSCs) represent an important cellular constituent of the tumor microenvironment, which along with tumor cells themselves, serve to regulate protective immune responses in support of progressive disease. We report that tumor MSCs prevent the ability of dendritic cells (DC) to promote naïve CD4(+) and CD8(+) T cell expansion, interferon gamma secretion and cytotoxicity against tumor cells, which are critical to immune-mediated tumor eradication. Notably, tumor MSCs fail to prevent DC-mediated early T cell activation events or the ability of responder T cells to produce IL-2. The immunoregulatory activity of tumor MSCs is IL-10- and STAT3-dependent, with STAT3 repressing DC expression of cystathionase, a critical enzyme that converts methionine-to-cysteine. Under cysteine-deficient priming conditions, naïve T cells exhibit defective cellular metabolism and proliferation. Bioinformatics analyses as well as in vitro observations suggest that STAT3 may directly bind to a GAS-like motif within the cystathionase promoter (-269 to -261) leading to IL-10-STAT3 mediated repression of cystathionase gene transcription. Our collective results provide evidence for a novel mechanism of tumor MSC-mediated T cell inhibition within tumor microenvironment.