Successful tissue engineering therapies rely on the appropriate selection of the cell source, biomaterial, and regulatory factors. To be applied in a wide range of clinical applications, the ideal cell source needs to be easily accessible and abundant. Human orofacial tissues and teeth harbor several populations of mesenchymal stem cells (MSCs) with self-renewal and multilineage differentiation capabilities. The ease of access, relative abundance, and minimally invasive isolation procedures needed to harvest most types of the dental-derived MSCs render them a promising cell source for tissue engineering applications. A growing body of evidence has reported the profound immunoregulatory potential of dental-derived MSCs as compared with their bone marrow counterparts. Biomaterials can act as a physical barrier protecting the MSCs from the invasion of the immune system by hindering penetration of proinflammatory cells/cytokines, leading to higher viability of the encapsulated MSCs and improved tissue regeneration. Besides their protective capabilities, biomaterials can actively contribute to the immunoregulatory potential of the MSCs through their physical and chemical properties, including porosity and elasticity. However, despite recent advancement, the therapeutic capability of biomaterials to regulate the MSC–host immune system crosstalk and the mechanism underlying this immunoregulation has been poorly understood. It has been reported that biomaterials can regulate the viability and determine the fate of the encapsulated MSCs through modulation of the NF-kB pathway and the caspase-3 and caspase-8 proapoptotic cascades. Additionally, the physiomechanical properties of the encapsulating biomaterial have been shown to modulate clustering of TNF-α receptors on the encapsulated MSCs while regulating the production of anti-inflammatory factors such as indoleamine 2,3-dioxygenase (IDO) and prostaglandin E2 (PGE2) through activation of the P38 MAPK pathway. In the current review, we sought to provide a thorough overview of the immunomodulatory functions of dental-derived MSCs and the role of biomaterials in their interplay with the host immune system.