Osteoarthritis (OA) is a chronic, prevalent, debilitating joint disease characterized by progressive cartilage degradation, subchondral bone remodeling, bone marrow lesions, meniscal damage, and synovitis. Innate immune cells (natural killer cells, macrophages, and mast cells) play the most important pathogenic role in the early inflammatory response, while cells of adaptive immunity (CD4 + Th1 lymphocytes and antibody producing B cells) significantly contribute to the development of chronic, relapsing course of inflammation in OA patients. Conventional therapy for OA is directed toward symptomatic treatment, mainly pain management, and is not able to promote regeneration of degenerated cartilage or to attenuate joint inflammation. Since articular cartilage, intra-articular ligaments, and menisci have no ability to heal, regeneration of these tissues remains one of the most important goals of new therapeutic approaches used for OA treatment. Due to their capacity for differentiation into chondrocytes and due to their immunomodulatory properties, mesenchymal stem cells (MSCs) have been the most extensively explored as new therapeutic agents in the cell-based therapy of OA. Simple acquisition, rapid proliferation, maintenance of differentiation potential after repeated passages in vitro, minor immunological rejection due to the low surface expression of major histocompatibility complex antigens, efficient engraftment and long-term coexistence in the host are the main characteristics of MSCs that enable their therapeutic use in OA. In this review article, we emphasized current knowledge and future perspectives regarding molecular and cellular mechanisms responsible for beneficial effects of autologous and allogeneic MSCs in the treatment of OA.