Human Mesenchymal Stem/Stromal Cells (MSCs) have been reported to produce an M2-like, alternatively activated phenotype in macrophages. In addition, MSCs mediate effective bacterial clearance in pre-clinical sepsis models. Thus, MSCs have a paradoxical anti-microbial and anti-inflammatory response that is not understood. Here we studied the phenotypic and functional response of monocyte-derived human macrophages to MSC exposure in vitroMSCs induced two distinct, co-existent phenotypes: M2-like macrophages (generally elongated morphology, CD163 positive, acute phagosomal acidification, low NADPH oxidase expression and low phagosomal superoxide production) and M1-like macrophages, characterised by high levels of phagosomal superoxide production. Enhanced phagosomal ROS production was also observed in alveolar macrophages from a rodent model of pneumonia-induced sepsis. The production of M1-like macrophages was dependent on PGE2 and PI3 kinase. MSCs enhanced human macrophage phagocytosis of unopsonized bacteria and enhanced bacterial killing compared to untreated macrophages. Bacterial killing was significantly reduced by blockade of NOX2 using diphenyleneiodonium, suggesting that M1-like cells are primarily responsible for this effect. MSCs also enhanced phagocytosis and polarisation of M1-like macrophages derived from patients with severe sepsis.The enhanced anti-microbial capacity (M1-like), and inflammation resolving phenotype (M2-like), may account for the paradoxical effect of these cells in sepsis in vivo.