Mesenchymal stromal cells (MSCs) have shown promise as a therapy for immune‐mediated disorders, including transplant rejection. Our group previously demonstrated the efficacy of pretransplant, systemic administration of allogeneic but not syngeneic MSCs in a rat cornea transplant model. The aim of this study was to enhance the immunomodulatory capacity of syngeneic MSCs. In vitro, MSCs licensed with TNF‐α/IL‐1β (MSCsTNF‐α/IL‐1β) suppress syngeneic lymphocyte proliferation via NO production. In vivo, when administered post‐transplantation, non‐licensed syngeneic MSCs improved graft survival from 0 to 50% and MSCsTNF‐α/IL‐1β, in an NO‐dependent manner, improved survival to 70%. Improved survival was associated with increased CD4+CD25+ forkhead box P3+ regulatory T (Treg) cells and decreased proinflammatory cytokine expression in the draining lymph node. MSCsTNF‐α/IL‐1β demonstrated a more potent immunomodulatory capacity compared with nonlicensed MSCs, promoting an immune‐regulatory CD11b+B220+ monocyte/macrophage population and significantly expanding Treg cells in the lungs and spleen. Ex vivo, we observed that lung‐derived myeloid cells act as intermediaries of MSC immunomodulatory function. MSC‐conditioned myeloid cells suppressed stimulated lymphocyte proliferation and promoted expansion of Treg cells from naive lymphocytes. This work illustrates how syngeneic MSC therapy can be enhanced by licensing and optimization of timing strategies and further highlights the important role of myeloid cells in mediating MSC immunomodulatory capacity.—Murphy, N., Treacy, O., Lynch, K., Morcos, M., Lohan, P., Howard, L., Fahy, G., Griffin, M. D., Ryan, A. E., Ritter, T. TNF‐α/IL‐1β—licensed mesenchymal stromal cells promote corneal allograft survival via myeloid cell—mediated induction of Foxp3+ regulatory T cells in the lung. FASEB J. 33, 9404–9421 (2019). http://www.fasebj.org