Engineered mesenchymal stem cells (MSCs) have been investigated extensively for gene delivery and, more recently, for targeted small molecule delivery. While preclinical studies demonstrate the potential of MSCs for targeted delivery, clinical studies suggest that tumor homing of native MSCs may be inefficient. We report here a surprising finding that loading MSCs with the anticancer drug paclitaxel (PTX) by nanoengineering results in significantly improved tumor homing compared to naïve MSCs. Loading PTX in MSCs results in increased levels of mitochondrial reactive oxygen species (ROS). In response to this oxidative stress, MSCs upregulate two important set of proteins. First were critical antioxidant proteins, most importantly nuclear factor erythroid 2-like 2 (Nrf2), the master regulator of antioxidant responses; upregulation of antioxidant proteins may explain how MSCs protect themselves from drug-induced oxidative stress. The second was CXCR4, a direct target of Nrf2 and a key mediator of tumor homing; upregulation of CXCR4 suggested a mechanism that may underlie the improved tumor homing of nanoengineered MSCs. In addition to demonstrating the potential mechanism of improved tumor targeting of nanoengineered MSCs, our studies reveal that MSCs utilize a novel mechanism of resistance against drug-induced oxidative stress and cell death, explaining how MSCs can deliver therapeutic concentrations of cytotoxic payload while maintaining their viability.