Researchers have applied mesenchymal stem cells (MSC) to a variety of therapeutic scenarios by harnessing their multipotent, regenerative, and immunosuppressive properties with tropisms toward inflamed, hypoxic, and cancerous sites. Although MSC-based therapies have been shown to be safe and effective to a certain degree, the efficacy remains low in most cases when MSC are applied alone. To enhance their therapeutic efficacy, researchers have equipped MSC with targeted delivery functions using genetic engineering, therapeutic agent incorporation, and cell surface modification. MSC can be genetically modified virally or non-virally to overexpress therapeutic proteins that complement their innate properties. MSC can also be primed with non-peptidic drugs or magnetic nanoparticles for enhanced efficacy and externally regulated targeting, respectively. Furthermore, MSC can be functionalized with targeting moieties to augment their homing toward therapeutic sites using enzymatic modification, chemical conjugation, or non-covalent interactions. These engineering techniques are still works in progress, requiring optimization to improve the therapeutic efficacy and targeting effectiveness while minimizing any loss of MSC function. In this review, we will highlight the advanced techniques of engineering MSC, describe their promise and the challenges of translation into clinical settings, and suggest future perspectives on realizing their full potential for MSC-based therapy.