Human-induced pluripotent stem cell (iPSC)-derived mesenchymal stem cells (iMSCs) represent a promising and renewable cell source for therapeutic applications. A systematic evaluation of the immunological properties and engraftment potential of iMSCs generated from urine-derived iPSCs is lacking, which has impeded their broader application. In this study, we differentiated urine-derived iPSCs into iMSCs and assessed their fundamental MSC characteristics, immunogenicity, immunomodulatory capacity and in vivo engraftment. Compared to umbilical cord-derived MSCs (UCMSCs), iMSCs demonstrated an enhanced proliferative capacity, a higher level of regenerative gene expression, and lower immunogenicity, strengthening resistance to apoptosis induced by allogeneic peripheral blood mononuclear cells (PBMCs) and the NK-92 cell line. In addition, iMSCs exhibited a diminished ability to inhibit T cell proliferation and activation compared with UCMSCs. Transcriptomic analyses further revealed the decreased expression of immune regulatory factors in iMSCs. After transfusion into mouse models, iMSCs engrafted in the lungs, liver, and spleen and exhibited the ability to migrate to tumor tissues. Our results indicated that iMSCs generated from urine-derived iPSCs have a significant replicative capacity, low immunogenicity and unique immunomodulatory properties, and hence offer obvious advantages in immune privilege and allogenic therapeutic application prospects.