Abstract Human ESCs provide access to the earliest stages of human development and may serve as an unlimited source of functional cells for future cell therapies. The optimization of methods directing the differentiation of human embryonic stem cells (hESCs) into tissue-specific precursors becomes crucial. We report an efficient enrichment of mesenchymal stem cells (MSCs) from hESCs through specific inhibition of SMAD-2/3 signaling. Human ESC-derived MSCs (hESC-MSCs) emerged as a population of fibroblastoid cells expressing a MSC phenotype: CD73+ CD90+ CD105+ CD44+ CD166+ CD45− CD34− CD14− CD19− human leucocyte antigen-DR (HLA-DR)−. After 28 days of SMAD-2/3 inhibition, hESC cultures were enriched (>42%) in multipotent MSCs. CD73+CD90+ hESC-MSCs were fluorescence activated cell sorting (FACS)-isolated and long-term cultures were established and maintained for many passages displaying a faster growth than somatic tissue-derived MSCs while maintaining MSC morphology and phenotype. They displayed osteogenic, adipogenic, and chondrocytic differentiation potential and exhibited potent immunosuppressive and anti-inflammatory properties in vitro and in vivo, where hESC-MSCs were capable of protecting against an experimental model of inflammatory bowel disease. Interestingly, the efficient enrichment of hESCs into MSCs through inhibition of SMAD-2/3 signaling was not reproducible with distinct induced pluripotent stem cell lines. Our findings provide mechanistic insights into the differentiation of hESCs into immunosuppressive and anti-inflammatory multipotent MSCs with potential future clinical applications.