Pre–B cell leukemia homeobox 1 (Pbx1)-d is a dominant-negative splice isoform of the gene Pbx1 that corresponds to the NZM2410 lupus susceptibility locus Sle1a1. Pbx1 is required to maintain stem cell self-renewal, including that of mesenchymal stem cells (MSCs). MSCs have immunosuppressive functions that require stem cell maintenance. We tested the hypothesis that the expression of Pbx1-d favors MSC differentiation and impairs their immunosuppressive functions. We demonstrate that Sle1a1 MSCs express high levels of Pbx1-d as compared with congenic C57BL/6J (B6) MSCs. Sle1a1 MSCs grew faster and differentiated significantly more rapidly into osteoblasts than did B6 MSCs. This corresponded to a significant decrease in the expression of genes associated with stemness and an increase in the expression of genes associated with differentiation. Additionally, Sle1a1 MSCs express a gene expression profile associated with an enhanced innate immunity and inflammation. Suppression of Ig production from TLR-activated B6 B cells and IL-2 secretion from activated B6 CD4+ T cells was significantly impaired in Sle1a1 MSCs as compared with B6 MSCs. B6.Sle1a1 MSCs showed intermediate activity in suppressing lupus immunophenotypes in three different mouse models. Taken together, these data suggest that the expression of the lupus susceptibility allele Pbx1-d isoform impairs MSC functions, which may contribute to lupus pathogenesis both through a defective immunosuppression and the promotion of a proinflammatory environment.