Cellular therapy offers regeneration which curbs osteoarthritis of the knee. Among cellular therapies, mesenchymal stromal cells (MSCs) are readily isolated from various sources as culture expanded and unexpanded cellular population which are used as therapeutic products. Though MSCs possess a unique immunological and regulatory profile through cross-talk between MSCs and immunoregulatory cells (T cells, NK cells, dendritic cells, B cells, neutrophils, monocytes, and macrophages), they provide an immunotolerant environment when transplanted to the site of action. Immunophenotypic profile allows MSCs to escape immune surveillance and promotes their hypoimmunogenic or immune-privileged status. MSCs do not elicit a proliferative response when co-cultured with allogeneic T cells in vitro. MSCs secrete a wide range of anti-inflammatory mediators such as PGE-2, IDO, IL-1Ra, and IL-10. They also stimulate the resilient chondrogenic progenitors and enhance the chondrocyte differentiation by secretion of BMPs and TGFβ1. We highlight the various mechanisms of MSCs during tissue healing signals, their interaction with the immune system, and the impact of their lifespan in the management of osteoarthritis of the knee. A better understanding of the immunobiology of MSC renders them as an efficient therapeutic product for the management of osteoarthritis of the knee.