Mesenchymal stem cells (MSCs) are used in both human clinical trials and veterinary medicine for the treatment of inflammatory and immune-mediated diseases. MSCs modulate inflammation by decreasing the cells and products of the inflammatory response. Stimulated equine MSCs from bone marrow (BM), adipose tissue (AT), cord blood (CB), and umbilical cord tissue (CT) inhibit lymphocyte proliferation and decrease inflammatory cytokine production. We hypothesized that equine MSCs inhibit T cell proliferation through secreted mediators and that MSCs from different tissue sources decrease T cell proliferation through different mechanisms. To test our hypotheses, we inhibited interleukin-6 (IL-6), nitric oxide (NO), and prostaglandin E2 (PGE2) to determine their impact on stimulated T cell proliferation. We also determined how equine MSCs modulate lymphocyte proliferation either via cell cycle arrest or apoptosis. Inhibition of IL-6 or NO did not reverse the immunomodulatory effect of MSCs on activated T cells. In contrast, inhibition of PGE2 restored T cell proliferation, restored the secretion of tumor necrosis factor-α and interferon-γ, and increased IL-10 levels. MSCs from solid-tissue-derived sources, AT and CT, inhibited T cell proliferation through induction of lymphocyte apoptosis while blood-derived MSCs, BM and CB, induced lymphocyte cell cycle arrest. Equine MSCs from different tissue sources modulated immune cell function by both overlapping and unique mechanisms. MSC tissue source may determine immunomodulatory properties of MSCs and may have very practical implications for MSC selection in the application of MSC therapy.