Bone marrow-derived mesenchymal stem cells (MSCs) have been reported to prevent the development of liver fibrosis in a number of pre-clinical studies. Marked changes in liver histopathology and serological markers of liver function have been observed without a clear understanding of the therapeutic mechanism by which stem cells act. We sought to determine if MSCs could modulate the activity of resident liver cells, specifically hepatic stellate cells (SCs) by paracrine mechanisms using indirect cocultures. Indirect coculture of MSCs and activated SCs led to a significant decrease in collagen deposition and proliferation, while inducing apoptosis of activated SCs. The molecular mechanisms underlying the modulation of SC activity by MSCs were examined. IL-6 secretion from activated SCs induced IL10 secretion from MSCs, suggesting a dynamic response of MSCs to the SCs in the microenvironment. Blockade of MSC-derived IL-10 and TNF-alpha abolished the inhibitory effects of MSCs on SC proliferation and collagen synthesis. In addition, release of HGF by MSCs was responsible for the marked induction of apoptosis in SCs as determined by antibody-neutralization studies. These findings demonstrate that MSCs can modulate the function of activated SCs via paracrine mechanisms provide a plausible explanation for the protective role of MSCs in liver inflammation and fibrosis, which may also be relevant to other models of tissue fibrosis. (C) 2007 Elsevier Inc. All rights reserved.