Mesenchymal stromal cells (MSCs) have been extensively tested for the treatment of numerous clinical conditions and have demonstrated good safety but mixed efficacy. Although this outcome can be attributed in part to the heterogeneity of cell preparations, the lack of mechanistic understanding and tools to establish cell pharmacokinetics and pharmacodynamics, as well as the poorly defined criteria for patient stratification, have hampered the design of informative clinical trials. We and others have demonstrated that MSCs can rapidly undergo apoptosis after their infusion. Apoptotic MSCs are phagocytosed by monocytes/macrophages that are then reprogrammed to become anti-inflammatory cells. MSC apoptosis occurs when the cells are injected into patients who harbor activated cytotoxic T or NK cells. Therefore, the activation state of cytotoxic T or NK cells can be used as a biomarker to predict clinical responses to MSC treatment. Building on a large body of preexisting data, an alternative view on the mechanism of MSCs is that an inflammation-dependent MSC secretome is largely responsible for their immunomodulatory activity. We will discuss how these different mechanisms can coexist and are instructed by two different types of MSC “licensing”: one that is cell-contact dependent and the second that is mediated by inflammatory cytokines. The varied and complex mechanisms by which MSCs can orchestrate inflammatory responses and how this function is specifically driven by inflammation support a physiological role for tissue stroma in tissue homeostasis, and it acts as a sensor of damage and initiator of tissue repair by reprogramming the inflammatory environment.