BackgroundArticular injection of mesenchymal stem cells (MSCs) has been applied to treat knee osteoarthritis (kOA), but its clinical outcomes are controversial. This study investigated whether an articular inflammatory microenvironment (AIM) impacts MSC-based therapy in a rat model of kOA.MethodsThe biological change of MSCs and the functional change of MSCs on chondrocytes were evaluated under AIM. The key mediator and mechanism for the AIM impact on MSC therapy were explored via gain- and loss-of-function approaches.ResultsThe results showed that MSCs exerted potent anti-kOA effects in vivo and in vitro, but that this therapy become chondrodestructive if a chronic AIM was present. Mechanistically, the overexpression of MMP13 in the injected MSCs via a MAPKs-AP1 signaling axis was revealed as the underlying mechanism for the detriment outcome.ConclusionsThis study thus clarifies recent clinical findings while also suggesting a means to overcome any detrimental effects of MSC-based therapy while improving its efficacy.Supplementary InformationThe online version contains supplementary material available at 10.1186/s12916-023-02923-6.