Mesenchymal stromal cells (MSCs) are one of the most clinically studied cell therapy products. The clinical potential of MSCs in a wide range of disease conditions lies in their immunosuppressive and anti-inflammatory effects. However, it remains unclear how MSCs exert their broad therapeutic effects in vivo, as these cells become undetectable shortly after administration. Therefore we sought to understand how short-lived MSCs mediate therapeutic effects that persist beyond their survival in vivo. We showed that intravenously administered MSCs underwent caspase 3-dependent apoptosis in the lungs and identified the molecular players involved in MSC apoptosis. Using pharmacological compounds that selectively target these regulators of cell death to induce apoptosis in MSCs, we found that apoptotic MSCs elicited immunosuppressive effects in vivo. Our data further showed that efferocytosis of MSCs by lung phagocytes is a crucial step in MSC immunosuppression. In a mouse model of asthma, this process of MSC apoptosis and efferocytosis triggered the transcriptional modification of alveolar macrophages to shut down inflammation. Our study indicates that the host immune response to dying MSCs is key to their therapeutic effects and clarifies an outstanding question in the field. Furthermore, potency assays should take into account how MSC apoptosis and their subsequent efferocytosis might contribute to therapeutic outcome.