Inflammatory diseases are significant causes of morbidity in both horses and humans. Mesenchymal stromal cells (MSCs) have demonstrated potential to treat inflammatory diseases and as an alternative for therapies with severe side effects. While in recent years more has been learned about the physiological effects of MSC administration, the implementation of MSC therapy is still hampered by therapeutic and manufacturing challenges, as well as insufficient understanding of MSCs’ fundamental mechanisms of action. The purpose of this thesis is to address some of the fundamental questions regarding MSCs’ potency assessment, dosage selection, and differential mechanisms of action in different disease types. Proliferation assessment of blood mononuclear cells (BMCs) from individual donors revealed varied responses to Conavalin A (ConA) stimulation. Mononuclear cell suppression assays (MSA) further demonstrated BMC donor variability. A potency assay based on pooled mononuclear cells (pMSA) was developed to provide non-biased in vitro assessment of MSCs. Utilizing pMSA, we demonstrated that both MSCs and pooled MSCs (pMSCs) were able to suppress pooled BMCs. Next, cytokine analysis, mRNA expression quantification, and MSC paracrine function (in)activation were used to evaluate the association between MSC dosage and their immunomodulatory effects, and whether interferon gamma (IFNγ) pre-treatment of MSCs will enhance their therapeutic efficacy. Administrations of increasing doses of syngeneic MSCs revealed a dose-dependent effect of MSCs and emphasize the important role of host cells in MSC treatment. We further elucidated MSCs’ mechanisms of action by introducing MSCs and secretome-deficient heat inactived MSCs (HI-MSCs) using two different animal models of immune responses and sepsis. Administration of MSCs in combination with mycophenolate mofetil (MMF) improved heart allograft survival in mice, whereas HI-MSCs had no effect. In contrast, HI-MSC treatment improved survival in sepsis, whereas MSCs had no effect. We demonstrated that MSC-mediated immunomodulation in sepsis is dependent on a passive recognition of MSCs by host monocytes, whereas fully functional MSCs are required for inhibition of T-cell mediated allograft rejection. In conclusion, MSC effects depend on the recipient’s immune system, dosage, and disease types. These results contribute to the design of rational MSC trials and to the quest for clinical efficacy of MSC therapy.