Mesenchymal stem cells (MSCs) are a promising tool for treating immune disorders. However, the effect and mechanism of canine MSCs compared with other commercialized biologics for treating immune disorders have not been well studied. In this study, we investigated the characteristics and immunomodulatory effects of canine amnion membrane (cAM)-MSCs. We examined T lymphocytes from activated canine peripheral blood mononuclear cell (PBMC) proliferation. As a result, we confirmed that cAM-MSCs suppressed the proliferation capacity of T cells and cytotoxic activity. Moreover, we confirmed the therapeutic effect and mechanism of cAM-MSCs compared with oclacitinib, the most commonly used Janus kinase (JAK) inhibitor, as a treatment for canine atopic dermatitis (AD) using a mouse AD model. As a result, we confirmed that scores of dermatologic signs, tissue pathologic changes and inflammatory cytokines were significantly reduced by cAM-MSC treatment. In particular, cAM-MSCs were more effective than oclacitinib in the recovery of wound dysfunction and regulation of mast cell activity. Interestingly, subcutaneous injection of cAM-MSCs induced weight recovery, but oral administration of oclacitinib induced weight loss as a side effect. In addition, it was confirmed that the secretion of TGF-β1 and IDO by cAM-MSCs is directly involved in improving atopic dermatitis. In conclusion, this study suggests that cAM-MSCs can be developed as a safe canine treatment for atopic dermatitis without side effects through effective regeneration and immunomodulation.