Despite the immunosuppressive, homing, and regenerative capabilities of mesenchymal stem cells (MSCs), their ability to migrate to arthritic joints and influence the course of arthritis in vivo remains poorly understood. The objective of this study was to determine if allogeneic MSCs migrate to inflamed joints in vivo and to determine if MSCs expressing the costimulation blocker cytotoxic T lymphocyte associated antigen-4 coupled to immunoglobulin-G (CTLA4Ig) could be used to ameliorate collagen induced arthritis (CIA). The migration of systemically delivered inbred mouse strain (FVB) MSCs to migrate to inflamed joints in CIA was studied using real-time quantitative polymerase chain reaction. Furthermore, the effect of BALB/c MSCs modified with an adenoviral vector to express CTLA4Ig, on T cell function in vitro and on CIA in vivo was assessed. After systemic delivery of FVB MSCs, eGFP DNA was detectable in the joints of mice with CIA confirming that some MSCs had reached to inflamed joints. BALB/c MSCs suppressed the secretion of both TNFα and IFNγ, and reduced the ratio of Th1:Th2 cytokine expression, by DBA/1 T cells in vitro irrespective of viral modification. The expression of CTLA4Ig did not augment this effect. Despite a worsening of disease scores after infusion of BALB/c MSCs in vivo, BALB/c MSCs expressing CTLA4Ig significantly delayed the onset of inflammatory arthritis in CIA. These data demonstrate that allogeneic MSCs can migrate to the inflamed joints of CIA in vivo and that genetically modified allogeneic MSCs may be considered for development of gene therapy strategies for inflammatory arthritis.