Type 2 diabetes mellitus (T2DM) is a major threat to global public health, with increasing prevalence as well as high morbidity and mortality, to which immune dysfunction has been recognized as a crucial contributor. Mesenchymal stromal cells (MSCs), obtained from various sources and possessing potent immunomodulatory abilities, have displayed great therapeutic potential for T2DM. Interestingly, the immunomodulatory capabilities of MSCs are endowed and plastic. Among the multiple mechanisms involved in MSC-mediated immune regulation, the paracrine effects of MSCs have attracted much attention. Of note, extracellular vesicles (EVs), an important component of MSC secretome, have emerged as pivotal mediators of their immunoregulatory effects. Particularly, the necrobiology of MSCs, especially apoptosis, has recently been revealed to affect their immunomodulatory functions in vivo. In specific, a variety of preclinical studies have demonstrated the beneficial effects of MSCs on improving islet function and ameliorating insulin resistance. More importantly, clinical trials have further uncovered the therapeutic potential of MSCs for T2DM. In this review, we outline current knowledge regarding the plasticity and underlying mechanisms of MSC-mediated immune modulation, focusing on the paracrine effects. We also summarize the applications of MSC-based therapies for T2DM in both preclinical studies and clinical trials, with particular emphasis on the modulation of immune system.