Aims This study aimed to investigate whether human umbilical cord mesenchymal stem cells (UC-MSCs) can prevent articular cartilage degradation and explore the underlying mechanisms in a rat osteoarthritis (OA) model induced by monosodium iodoacetate (MIA). Methods Human UC-MSCs were characterized by their phenotype and multilineage differentiation potential. Two weeks after MIA induction in rats, human UC-MSCs were intra-articularly injected once a week for three weeks. The therapeutic effect of human UC-MSCs was evaluated by haematoxylin and eosin, toluidine blue, Safranin-O/Fast green staining, and Mankin scores. Markers of joint cartilage injury and pro- and anti-inflammatory markers were detected by immunohistochemistry. Results Histopathological analysis showed that intra-articular injection of human UC-MSCs significantly inhibited the progression of OA, as demonstrated by reduced cartilage degradation, increased Safranin-O staining, and lower Mankin scores. Immunohistochemistry showed that human UC-MSC treatment down-regulated the expression of matrix metalloproteinase-13 (MMP13) and a disintegrin and metalloproteinase with thrombospondin motifs 5 (ADAMTS-5), and enhanced the expression of type II collagen and ki67 in the articular cartilage. Furthermore, human UC-MSCs significantly decreased the expression of interleukin (IL)-1β and tumour necrosis factor-α (TNF-α), while increasing TNF-α-induced protein 6 and IL-1 receptor antagonist. Conclusion Our results demonstrated that human UC-MSCs ameliorate MIA-induced OA by preventing cartilage degradation, restoring the proliferation of chondrocytes, and inhibiting the inflammatory response, which implies that human UC-MSCs may be a promising strategy for the treatment of OA. Cite this article: Bone Joint Res 2021;10(3):226–236.