Abstract Mesenchymal stem cells (MSCs) are multi-potent with numerous mesenchymal-lineage differentiation potential and immunomodulatory capabilities. However, the immunoregulatory properties of MSCs are not clearly defined. The objective of the present study was to elucidate the role(s) of MSCs in IL-17 production and the subsequent effect(s) on neutrophil activation. We have demonstrated that human bone marrow-derived MSCs (BM-MSCs) instruct anti-CD3/anti-CD28 antibody-activated CD4+ CD45RO+ memory T cells, but not other CD4+ subsets or CD8+ T cells, to produce IL-17 after cell–cell contact. After the addition of IL-17, neutrophil phagocytic activity was increased. This is the first report on the ability of BM-MSCs to induce IL-17 production in memory CD4+ T cells that, in turn, promotes enhanced phagocytic activity of neutrophils. These results suggest that MSCs regulate the functional activation of neutrophils via their role in modulating IL-17 from CD4+ CD45RO+ memory T cells.