The potential of mesenchymal stromal cells (MSCs) to inhibit anti-tumor immunity is becoming increasingly well recognized, but the precise steps affected by these cells during the development of an anti-tumor immune response remain incompletely understood. Here, we examined how MSCs affect the steps required to mount an effective anti-tumor immune response following administration of adenovirus-Fas ligand (As-FasL) in the Lewis Lung carcinoma (LL3) model. Administration of bone marrow derived MSCs with LL3 cells accelerated tumor growth significantly. MSCs inhibited the inflammation induced by Ad-FasL in the primary tumors, precluding their rejection; MSCs also reduced the consequent expansion of tumor-specific T cells in the treated hosts. When immune T cells were transferred to adoptive recipients, MSCs impaired, but did not completely abrogate the ability of these T cells to promote elimination of secondary tumors. This impairment was associated with a modest reduction in tumor infiltrating T cells, with a significant reduction in tumor-infiltrating macrophages, and a reorganization of the stromal environment. Our data indicate that MSCs in the tumor environment reduce the efficacy of immunotherapy by creating a functional and anatomic barrier that impairs inflammation, T-cell priming and expansion, and T-cell function - including recruitment of effector cells.