Abstract Background In addition to their multilineage potential, mesenchymal stem cells (MSCs) have a broad range of functions from tissue regeneration to immunomodulation. MSCs have the ability to modulate the immune response and change the progression of different inflammatory and autoimmune disorders. However, there are still many challenges to overcome before their widespread clinical administration including the mechanisms behind their immunoregulatory function. MSCs inhibit effector T cells and other immune cells, while inducing regulatory T cells (T regs), thus, reducing directly and indirectly the production of pro-inflammatory cytokines. TNF/TNFR signaling plays a dual role: while the interaction of TNFα with TNFR1 mediates pro-inflammatory effects and cell death, its interaction with TNFR2 mediates anti-inflammatory effects and cell survival. Many immunosuppressive cells like T regs, regulatory B cells (B regs), endothelial progenitor cells (EPCs), and myeloid-derived suppressor cells (MDSCs) express TNFR2, and this is directly related to their immunosuppression efficiency. In this article, we investigated the role of the TNFα/TNFR2 immune checkpoint signaling pathway in the immunomodulatory capacities of MSCs. Methods Co-cultures of MSCs from wild-type (WT) and TNFR2 knocked-out (TNFR2 KO) mice with T cells (WT and TNFα KO) were performed under various experimental conditions. Results We demonstrate that TNFR2 is a key regulatory molecule which is strongly involved in the immunomodulatory properties of MSCs. This includes their ability to suppress T cell proliferation, activation, and pro-inflammatory cytokine production, in addition to their capacity to induce active T regs. Conclusions Our results reveal for the first time the importance of the TNFα/TNFR2 axis as an active immune checkpoint regulating MSC immunological functions.