Osteoarthritis (OA) was recently defined as an epidemic, and the lack of effective treatment is highly correlated to the limited knowledge regarding the underlying pathophysiology. Failure to regenerate upon trauma is thought to be one of the underlying causes for degenerative diseases, including OA. To investigate why lesions within an OA environment fail to heal, a heterogeneous cell population was isolated from the synovial fluid (SF) of OA patients. The cells' ability to undergo processes required for functional tissue regeneration was evaluated in the presence or absence of autologous SF. The obtained mechanistic findings were then used for the development of an immunomodulatory cell treatment, aimed to restore the pro-regenerative environment. Intra-articular injection in a clinical compassionate use study showed that the treatment restored the articular cartilage and joint homeostasis of OA patients. These findings confirm the role of pro-regenerative immune cells and their targeted influence on progenitor cells for degenerative joint disease therapies.