Bone marrow-derived mesenchymal stem cells (MSC) are multipotent adult stem cells of mesodermal origin localized within the bone marrow compartment. MSC possess multilineage property making them useful for a number of potential therapeutic applications. MSC can be isolated from the bone marrow, expanded in culture and genetically modified to serve as cell carriers for local or systemic therapy. Despite their ability to differentiate into osteoblasts, chondrocytes, adipocytes, myocytes and neuronal cells under appropriate stimuli, distinct molecular signals that guide migration of MSC to specific targets largely remain unknown. The pluripotent nature of MSC makes them ideal resources for regenerative medicine, graft-versus-host disease and autoimmune diseases. Despite their therapeutic potential in a variety of diseases, certain issues need to be critically addressed both in in vitro expansion of these cells without losing their stem cell properties, and the long-term fate of the transplanted MSC in vivo following ex vivo modifications. Finally, understanding of complex, multistep and multifactorial differentiation pathways from pluripotent stem cells to functional tissues will allow us to manipulate MSC for the formation of competent composite tissues in situ. The present article will provide comprehensive account of the characteristics of MSC, their isolation and culturing, multilineage properties and potential therapeutic applications.