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Increasing global birth rate, coupled with the aging population surviving into their eighth decade has lead to increased incidence diseases, hitherto designated as rare. Brain related ischemia, at birth, or later in life, during, for example stroke, is increasing in global prevalence. Reactive microglia can contribute to neuronal damage as well as compromising transplantion. One potential treatment strategy is cellular therapy, using mesenchymal stem cells (hMSCs), which possess immunomodulatory and cell repair properties. For effective clinical therapy, mechanisms of action must be understood better. Here multicentre international laboratories assessed this question together investigating application of hMSCs neural involvement, with interest in the role of reactive microglia. Modulation by hMSCs in our in vivo and in vitro study shows they decrease markers of microglial activation (lower ED1 and Iba) and astrogliosis (lower GFAP) following transplantation in an ouabain-induced brain ischemia rat model and in organotypic hippocampal cultures. The anti-inflammatory effect in vitro was demonstrated to be CD200 ligand dependent with ligand expression shown to be increased by IL-4 stimulation. hMSC transplant reduced rat microglial STAT3 gene expression and reduced activation of Y705 phosphorylated STAT3, but STAT3 in the hMSCs themselves was elevated upon grafting. Surprisingly, activity was dependent on heterodimerisation with STAT1 activated by IL-4 and Oncostatin M. Our study paves the way to preclinical stages of a clinical trial with hMSC, and suggests a non-canonical JAK-STAT signaling of unphosphorylated STAT3 in immunomodulatory effects of hMSCs.