Bone marrow derived mesenchymal stem cells (MSCs) play a critical role in immune modulation. However, immunomodulatory function of whole human umbilical cord derived mesenchymal stem cells (UC-MSCs) remains unclear. In this study, UC-MSCs were separated from whole umbilical cord using a single enzyme digestion. UC-MSCs (CD73+, CD90+, CD105+, and CD34−, CD45−, HLA-DR−) were differentiated into adipocytes, osteocytes and chondrocytes in vitro under specific stimulatory environments. UC-MSCs suppressed umbilical cord blood lymphocyte proliferation stimulated by mitogen, and ELISA showed that the secretion of INF-γ was downregulated, and the secretion of IL-4 was upregulated, with CD8+ T cells markedly decreased and CD4+ T cells changed lightly. Moreover, the infusion of UC-MSCs in recipient mice transplanted with donor bone marrow cells ameliorated acute graft-versus host disease (aGVHD) and extended survival. In conclusion, UC-MSCs might negatively modulate immunoreactions, and have application potential in the treatment of aGVHD caused by allogeneic stem cells transplantation.