Background/Aims: Increasing evidence has demonstrated the novel roles of mesenchymal stem cells (MSCs) in immunotherapy. However, difficulty in acquiring these cells and possible ethical issues limited their application. Recently, we have isolated a unique MSC population from dental follicles with potent stem cell-like properties. This study focused on the effects of dental follicle stem cells (DFSCs) on macrophage activation and polarization to determine their role in immunomodulation and to test if DFSCs are a promising cell source for MSC-based immunotherapy. Methods: Rat acute lung injury (ALI) models induced by Lipopolysaccharide (LPS) were applied to test the immune-modulatory effects of DFSC/DFSC-CM in vivo. The pulmonary permeability was determined by the dry / wet weight ratios of the left upper lung lobe. The lung histopathological damage was graded on a 0 to 4+ scale. And the inflammatory cytokines in bronchoalveolar lavage fluid (BALF) were tested by ELISA. Then we established LPS-induced inflamed macrophage models in vitro. Inflammatory cytokine production and polarization marker expression were measured by RT-qPCR, ELISA, western blot and flow cytometric analysis in macrophages following DFSC-CM treatment. The paracrine factors in DFSC-CM were revealed by a RayBiotech Protein Array. Thereafter, neutralization studies were performed to confirm the potential immune regulators in DFSC-CM. Results: The DFSC/DFSC-CM not only attenuated histopathological damage and pulmonary permeability, but also downregulated pro-inflammatory cytokines MCP-1, IL-1, IL-6 and TNF-α, and upregulated anti-inflammatory cytokine IL-10 in BALF. Immunofluorescence staining revealed the increased expression of macrophage M2 marker Arg-1. Further in vitro study revealed that macrophages switched to an anti-inflammatory M2 phenotype when co-cultured with DFSC-CM, characterized by suppressed production of pro-inflammatory cytokines MCP-1, IL-1, IL-6, TNF-α and M1-polarizing markers iNOS and CD86; and increased expression of the anti-inflammatory cytokine IL-10 and the M2-polarizing markers Arg-1 and CD163. A RayBiotech Protein Array revealed 42 differentially expressed (> 2-fold) paracrine factors in DFSC-CM compared with the serum-free Ham’s F-12K medium, among which TGF-β3 and Thrombospondin-1 (TSP-1) were upregulated by 18- and 105-fold, respectively. Neutralization studies confirmed the immunoregulatory roles of TGF-β3 and TSP-1 in macrophage activation and polarization. Conclusion: These results indicated that DFSCs can reprogram macrophages into the anti-inflammatory M2 phenotype, the paracrine factors TGF-β3 and TSP-1 may be one of the underlying mechanisms. This study supports the hypothesis that DFSCs are promising for MSC-based immunotherapy.