Mesenchymal stem cells (MSCs), derived from either bone marrow (BM) or Wharton's jelly (WJ), inhibit the proliferation of activated T cells, and interferon (IFN)gamma serves an important role in this process. This process is B7homolog (H)1dependent during cell contact inhibition. However, the signaling pathway involved in B7H1 expression in MSCs remains largely undefined. The present study demonstrated activation of B7H1 by engaging signal transducer and activator of transcription (STAT)1 signaling in MSCs. Human BM and WJMSCs were isolated and cultured. The immunosuppressive effect of BM and WJMSCs on phytohemagglutinin (PHA)induced T cell proliferation was compared using direct and indirect coculture systems. B7H1 expression on BM and WJMSCs was detected by flow cytometry. Small interfering (si)RNA was used to knock down the expression of STAT1. The inhibitory effect of MSCs on T lymphocytes was observed using PHAinduced T cell proliferation assays. IFNgammainduced B7H1 expression on human BM and WJMSCs increased in a timedependent manner. Furthermore, the inhibitory effect of MSCs on T cell proliferation was be restored when an antiB7H1 monoclonal antibody was used. When STAT1 signaling was inhibited by siRNA, B7H1 expression on IFNgammatreated MSCs decreased and T cell proliferation was restored: however, the expression of B7H1 did not alter upon treatment with a phosphatidylinositol3kinase (PI3K) inhibitor (LY294002). These results demonstrated that the IFNgammainduced immunosuppressive properties of B7H1 in human BM and WJMSCs were mediated by STAT1 signaling, and not by PI3K/RACalpha serine/threonineprotein kinase signaling. Understanding the intracellular mechanisms underlying IFNgammainduced expression of B7H1 in MSCs may ultimately lead to an improved understanding of MSCs and provide insight into their use as cell therapy agents.