Mesenchymal stem cells (MSC) inhibit the response of allogeneic T lymphocytes in culture. Because the mechanisms of this effect may differ according to the existence of cell contact, we investigated the differences in gene expression of inhibitory molecules during MSC-T lymphocyte coculture when cell contact does and does not occur. Human MSC and T lymphocytes were cultured together in standard and transwell cultures. MSC gene expression was analyzed by semiquantitative real-time RT-PCR. MSC elicited a high dose-dependent inhibition of T lymphocytes in cultures with cell contact, but inhibition occurred even without cell contact. In both cases, we observed significant upregulation of IDO, LIF, and HLA-G, along with downregulation of HGF and SDF1. In cultures with cell contact, IL-10 and TGF-beta transcripts were expressed in a significantly higher level than in cultures without this contact. Furthermore, in the latter, the increased inhibition of T-cell proliferation was positively correlated with IDO gene expression and negatively correlated with SDF1 gene expression. MSC appear to induce T-cell tolerance by two distinct mechanisms. The first of these, which does not require cell contact, induces expression of the tolerogenic genes IDO, LIF, and HLA-G. The second mechanism, which is contact dependent, modulates IL-10 and TGF-beta gene expression. These two mechanisms probably play separate roles in MSC-induced tolerance in allogeneic hematopoietic stem cell transplantation.