Bone marrow-derived mesenchymal stem cells (MSC) have unique immunomodulatory and reparative properties beneficial for allotransplantation cellular therapy. The clinical administration of autologous or allogeneic MSC with immunosuppressive drugs is able to prevent and treat allograft rejection in kidney transplant recipients, thus supporting the immunomodulatory role of MSC. Interferon-gamma (IFN-γ) is known to enhance the immunosuppressive properties of MSC. IFN-γ preactivated MSC (MSC-γ) directly or indirectly modulates T cell responses by enhancing or inducing MSC inhibitory factors. These factors are known to downregulate T cell activation, enhance T cell negative signalling, alter T cells from a proinflammatory to an anti-inflammatory phenotype, interact with antigen-presenting cells and increase or induce regulatory cells. Highly immunosuppressive MSC-γ with increased migratory and reparative capacities may aid tissue repair, prolong allograft survival and induce allotransplant tolerance in experimental models. Nevertheless, there are contradictory in vivo observations related to allogeneic MSC-γ therapy. Many studies report that allogeneic MSC are immunogenic due to their inherent expression of major histocompatibility (MHC) molecules. Enhanced expression of MHC in allogeneic MSC-γ may increase their immunogenicity and this can negatively impact allograft survival. Therefore, strategies to reduce MSC-γ immunogenicity would facilitate "off-the-shelf" MSC therapy to efficiently inhibit alloimmune rejection and promote tissue repair in allotransplantation. In this review, we examine the potential benefits of MSC therapy in the context of allotransplantation. We also discuss the use of autologous and allogeneic MSC and the issues associated with their immunogenicity in vivo, with particular focus on the use of enhanced MSC-γ cellular therapy.