Tumor-targeted drug delivery has the potential to improve therapeutic efficacy and mitigate non-specific toxicity of anticancer drugs. However, current drug delivery approaches rely on inefficient passive accumulation of the drug carrier in the tumor. We have developed a unique, truly active tumor-targeting strategy that relies on engineering mesenchymal stem cells (MSC) with drug-loaded nanoparticles. Our studies using the A549 orthotopic lung tumor model show that nano-engineered MSCs carrying the anticancer drug paclitaxel (PTX) home to tumors and create cellular drug depots that release the drug payload over several days. Despite significantly lower doses of PTX, nano-engineered MSCs resulted in significant inhibition of tumor growth and superior survival. Anticancer efficacy of nano-engineered MSCs was confirmed in immunocompetent C57BL/6 albino female mice bearing orthotopic Lewis Lung Carcinoma (LL/2-luc) tumors. Furthermore, at doses that resulted in equivalent therapeutic efficacy, nano-engineered MSCs had no effect on white blood cell count, whereas PTX solution and PTX nanoparticle treatments caused leukopenia. Biodistribution studies showed that nano-engineered MSCs resulted in greater than 9-fold higher AUC lung of PTX (1.5 mg.day/g) than PTX solution and nanoparticles (0.2 and 0.1 mg.day/g tissue, respectively) in the target lung tumors. Furthermore, the lung-to-liver and the lung-to-spleen ratios of PTX were several folds higher for nano-engineered MSCs relative to those for PTX solution and nanoparticle groups, suggesting that nano-engineered MSCs demonstrate significantly less off-target deposition. In summary, our results demonstrate that nano-engineered MSCs can serve as an efficient carrier for tumor-specific drug delivery and significantly improved anti-cancer efficacy of conventional chemotherapeutic drugs.