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<strong>Background: </strong>Mesenchymal stem cells (MSCs) and transforming growth factor-β1 (TGF-β1) molecules are well known for their immunomodulatory properties and their function in tissue regeneration and remodeling. <strong>Objectives: </strong>To evaluate the interaction of TGF-β1 engineered MSCs with T cells and dendritic cells (DCs) and their modulatory effect on the immune response. <strong>Methods: </strong>MSCs and DCs were generated from bone marrow of Balb/c mice and T cells were generated from mice lymph nodes. TGF-β1 expressing lentiviruses were used for MSCs transduction, and then these engineered MSCs were co-cultured with T cells and DCs. T cells proliferation and cytokines release and also DCs maturation, TNF-α release, and stimulation of allogeneic T cells were evaluated. <strong>Results:</strong> T cells proliferation and IFN-γ release were suppressed by TGF-β1/MSCs while IL-4 secretion was enhanced. Co-cultured DCs with TGF-β1/MSCs showed reduced expression of CD40, CD86, and MHC II and also lower level of TNF-α secretion. Co-cultured DCs could also induce lower levels of allogeneic T cells proliferation and IFN-γ release in comparison to control DCs. <strong>Conclusion: </strong>Engineered TGF-β1/MSC cells showed collaborative immune suppressive functions between TGF-β1 and MSCs to modulate T cells and DCs immune responses. We therefore suggest that TGF-β1/MSC cells could provide a promising tool for treatment of clinical conditions such as organ transplantation, GVHD, and autoimmune disorders.