Osteoarthritis (OA) remains a major challenge for clinicians and researchers, as current treatments predominantly focus on symptomatic relief without completely addressing the underlying pathogenesis. In this regard, intraarticular injections of mesenchymal stem cells (MSCs) are emerging as a promising choice to mitigate pain and functional impairment in knee OA patients. The strong optimism for this therapeutic modality is based on experimental evidence supporting a role for MSCs in modulating inflammation, as well as encouraging clinical trials reporting safety and significant pain mitigation outcomes. However, inconsistencies related to their therapeutic efficacy remain a key concern. Therefore, a comprehensive understanding of the mechanisms by which MSCs exert their anti-inflammatory and joint-preserving effects is critically needed to ensure wider clinical translation. Recent research underscores the significance of MSCs as biomedicines with the potential to modulate the pro-inflammatory pathobiology of the entire OA joint. Their ability to crosstalk with joint resident cells and the infiltrating immune cells to reduce the overall catabolic load on the OA joints is being recognized as a primary mechanism underlying their therapeutic benefits. In this review, we discuss the significance of intraarticular MSC injections in the field of OA clinical research and focus on the immunomodulatory mechanisms underlying the ability of MSCs to modulate inflammation within OA joints by targeting both immune and resident joint cells. We identify current limitations and highlight the need for multidisciplinary clinical and basic science research to establish innovative approaches to further develop MSC-based therapies as efficacious biomedicines to treat OA patients.