Hypoxic-ischemic encephalopathy (HIE) in preterm infants is a severe disease for which no curative treatment is available. Cerebral inflammation and invasion of activated peripheral immune cells have been shown to play a pivotal role in the etiology of white matter injury, which is the clinical hallmark of HIE in preterm infants. The objective of this study was to assess the neuroprotective and anti-inflammatory effects of intravenously delivered mesenchymal stem cells (MSC) in an ovine model of HIE. In this translational animal model, global hypoxia-ischemia (HI) was induced in instrumented preterm sheep by transient umbilical cord occlusion, which closely mimics the clinical insult. Intravenous administration of 2 x 10(6) MSC/kg reduced microglial proliferation, diminished loss of oligodendrocytes and reduced demyelination, as determined by histology and Diffusion Tensor Imaging (DTI), in the preterm brain after global HI. These anti-inflammatory and neuroprotective effects of MSC were paralleled by reduced electrographic seizure activity in the ischemic preterm brain. Furthermore, we showed that MSC induced persistent peripheral T-cell tolerance in vivo and reduced invasion of T-cells into the preterm brain following global HI. These findings show in a preclinical animal model that intravenously administered MSC reduced cerebral inflammation, protected against white matter injury and established functional improvement in the preterm brain following global HI. Moreover, we provide evidence that induction of T-cell tolerance by MSC might play an important role in the neuroprotective effects of MSC in HIE. This is the first study to describe a marked neuroprotective effect of MSC in a translational animal model of HIE.