Mesenchymal stem cells isolated from connective tissues are pluripotent and differentiate into phenotypes of connective tissue cell lineages (osteoblasts, chondrocytes, and adipocytes) in vitro and in vivo. They have been used to treat mouse models of connective tissue disease such as lumican-null (Lum−/−) and mucopolysaccharidosis (Gusb) mice. Mesenchymal stem cells have unique immunosuppressive properties allowing evasion of host rejection; thus, they are valuable tools for cell therapy of congenital and acquired diseases involving immune dysfunction of multiple tissues including ocular surface tissues (cornea). We previously showed that human umbilical mesenchymal stem cells (UMSCs) modulated host immune responses, enabling them to survive xenograft transplantation. In vitro, UMSCs modulated inflammatory cells by inhibiting adhesion and invasion, and inducing cell death. UMSCs also regulated M1/M2 macrophage polarization and induced T-regulatory cell maturation from naive intraperitoneal cavity lavage cells. UMSCs exposed to inflammatory cells synthesized a rich extracellular glycocalyx composed of hyaluronan (HA) bound to the heavy chains (HCs) of inter-alpha-trypsin inhibitor (HC-HA), which contains tumor necrosis factor-α-stimulated gene 6 (TSG6) that catalyzes the transfer of HCs to HA, versican, and pentraxin-3. Our in vivo and in vitro results showed that the glycocalyx regulated inflammatory cells, allowing UMSCs to survive host immune rejection. Administration of antibodies against glycocalyx constituents or digestion with hyaluronidase and chondroitinase ABC abolished the UMSCs' ability to modulate immune responses. Treatment with anti-CD44 antibodies also diminished modulation of M2 macrophages by UMSCs, indicating that cell surface CD44 is required for correct UMSC glycocalyx assembly to modulate inflammatory cells.