Multiple sclerosis (MS) is an inflammatory demyelinating disease of the central nervous system and is a leading cause of disability in young adults. Most therapeutic strategies are based on immunosuppressant effects. However, none of the drugs showed complete remission and may result in serious adverse events such as infection. Mesenchymal stem cells (MSCs) have gained much attention and are considered a potential therapeutic strategy owing to their immunomodulatory effects and neuroprotective functions. Experimental autoimmune encephalomyelitis (EAE), a classical animal model for MS, is widely used to explore the efficacy and mechanism of MSC transplantation. This review summarises the therapeutic mechanism of MSCs in the treatment of EAE, including the effects on immune cells (T cells, B cells, dendritic cells, natural killer cells) and central nervous system-resident cells (astroglia, microglia, oligodendrocytes, neurons) as well as various strategies to improve the efficacy of MSCs in the treatment of EAE. Additionally, we discuss the clinical application of MSCs for MS patients as well as the challenges and prospects of MSC transplantation.