Multipotent adult progenitor cells (MAPCs) are nonhematopoietic stem cells capable of giving rise to a broad range of tissue cells. As such, MAPCs hold promise for tissue injury repair after transplant. In vitro, MAPCs potently suppressed allogeneic T-cell activation and proliferation in a dose-dependent, cell contact-independent, and T-regulatory cell-independent manner. Suppression occurred primarily through prostaglandin E2 synthesis in MAPCs, which resulted in decreased proinflammatory cytokine production. When given systemically, MAPCs did not home to sites of allopriming and did not suppress graft-versus-host disease (GVHD). To ensure that MAPCs would colocalize with donor T cells, MAPCs were injected directly into the spleen at bone marrow transplantation. MAPCs limited donor T-cell proliferation and GVHD-induced injury via prostaglandin E2 synthesis in vivo. Moreover, MAPCs altered the balance away from positive and toward inhibitory costimulatory pathway expression in splenic T cells and antigen-presenting cells. These findings are the first to describe the immunosuppressive capacity and mechanism of MAPC-induced suppression of T-cell alloresponses and illustrate the requirement for MAPC colocalization to sites of initial donor T-cell activation for GVHD inhibition. Such data have implications for the use of allogeneic MAPCs and possibly other immunomodulatory nonhematopoietic stem cells for preventing GVHD in the clinic.