Graft-versus-host disease (GVHD), a severe complication of allogeneic stem cell transplantation, arises when donor immune cells attack host tissues, triggering a cytokine storm. Mesenchymal stem cells (MSCs) have emerged as a promising therapeutic option due to their immunomodulatory, tissue repair, and regenerative properties. Recent studies highlight the fate of MSCs post-administration, revealing their clearance by host macrophages through efferocytosis following apoptosis. This interaction not only modulates the recipient’s immune system but also underscores the role of MSC-derived factors in immune regulation. In addition to mitigating GVHD, MSCs promote engraftment by secreting hematopoietic cytokines and suppressing host immune responses. Despite these advantages, the clinical efficacy of MSCs remains inconsistent, posing a challenge to their widespread application. Notably, MSCs derived from sources such as Wharton’s jelly and adipose tissue exhibit superior immunomodulatory capabilities due to their unique gene signatures that enhance immune regulation. This chapter explores the evolving role of MSCs in GVHD prevention and treatment, emphasizing their mechanistic insights, therapeutic limitations, and the potential of tissue-specific MSCs. It also discusses future strategies for optimizing MSC-based therapies to improve clinical outcomes in stem cell transplantation.