OBJECTIVE To investigate the potential immunomodulatory properties of fetal bone marrow derived mesenchymal stem cells (FBM- MSCs). METHODS Mononuclear cells from the bone marrow of second trimester (14-22 wks) fetus were isolated and cultured for the derivation of MSCs. The derived FBM-MSC cells were characterized via morphology, immunophenotyping and the adipogenic and osteogenic differentiation assays. The immunomodulatory properties of FBM-MSC on lymphocytes were evaluated through the co- culture assay with PHA activated adult peripheral blood mononuclear cells (PBMCs). RESULTS Derived FBM-MSCs were CD29⁺, CD44⁺, CD49e⁺, CD73⁺, CD90⁺, CD105⁺ and CD31⁻ , CD34⁻ , CD45⁻ , HLA-DR⁻ and can be differentiated into adipocytes and osteocytes. When co-cultured with PHA-activated PBMCs, FBM-MSCs inhibited the proliferation of lymphocytes up to 96% and down-regulated the secretion of inflammatory cytokines such as IFN-γ and TNF-α up to 90.9% and 58.4% respectively. When compared with FBM-MSCs cultured alone, the expression of MSCs derived immunomodulatory cytokines, such as IDO, TSG-6 and TGF-β, was up-regulated significantly in the co-culture system. CONCLUSION MSC derived from fetal bone marrow demonstrated immunosuppressive effects on adult PBMCs in vitro. MSC-derived cytokines like IDO, TSG-6 and TGF-β may be critical for FBM-MSCs mediated immunosuppressive function.