Mesenchymal stem cells (MSCs) are immunoregulatory, and the administration of them has been shown to ameliorate inflammation caused by Th17 cells. However, the mechanisms that contribute to MSC regulation on Th17 cell development are unclear. Here, we found that MSCs could inhibit Th17 cell differentiation through the activation of suppressors of cytokine signaling 3 (SOCS3) when coculture of MSCs and CD4(+)CD25(low)CD44(low)CD62L(high) T cells. Further analysis demonstrated that the inhibitory action was mediated via interferon gamma (IFN-γ), which activated signal transducer and activator of transcription-1 (STAT1) to enhance the expression of SOCS3, leading to STAT3 inhibition. Moreover, stable and reciprocal changes in H3K4me3 and H3K27me3 at the promoters of STAT1, STAT3 and RORγt determined the fate of Th17 cells. These results demonstrate that MSCs may inhibit Th17 differentiation via IFN-γ that activates SOCS3 leading to immunomodulatory effects, suggesting a possible mechanism by which MSCs could act as a cellular approach to attenuate the clinical and pathological manifestations of some autoimmune diseases.