Mesenchymal stem cells (MSCs) are known for their immunomodulatory functions. We previously demonstrated that bone marrow-derived MSCs effectively control transplant arteriosclerosis (TA) by enhancing IL-10(+) and IFN-γ(+) cells. The objective of this study is to elucidate the mechanism by which MSCs induce IL-10(+)IFN-γ(+)CD4(+) regulatory T type 1 (T(R)1)-like cells. In an MLR system using porcine PBMCs, MSC-induced IL-10(+)IFN-γ(+)CD4(+) cells, which confer resistance to allogeneic proliferation in an IL-10-dependent manner, resemble T(R)1-like cells. Both cyclooxygenase-derived PGE(2) and IDO help to induce T(R)1-like cells by MSCs. MSCs constitutively secrete PGE(2), which is augmented in allogeneic reactions. However, T(R)1-like cells were deficient in PGE(2) and 4-fold less potent than were MSCs in suppressing MLR. PGE(2) mimetic supplements can enhance the immunosuppressive potency of T(R)1-like cells. In a porcine model of allogeneic femoral arterial transplantation, MSC-induced T(R)1-like cells combined with PGE(2), but not either alone, significantly reduced TA at the end of 6 wk (percentage of luminal area stenosis: T(R)1-like cells + PGE(2): 11 ± 10%; PGE(2) alone: 93 ± 8.7%; T(R)1-like cells alone: 88 ± 2.4% versus untreated 94 ± 0.9%, p < 0.001). These findings indicate that PGE(2) helps MSC-induced IL-10(+)IFN-γ(+)CD4(+) T(R)1-like cells inhibit TA. PGE(2) combined with MSC-induced T(R)1-like cells represents a new approach for achieving immune tolerance.