Mesenchymal stem cells (MSCs) have been broadly used as a therapy for autoimmune disease in both animal models and clinical trials. MSCs inhibit T effector cells and many other immune cells, while activating regulatory T cells, thus reducing the production of pro-inflammatory cytokines, including tumor necrosis factor (TNF), and repressing inflammation. TNF can modify the MSC effects via two TNF receptors, i.e., TNFR1 in general mediates pro-inflammatory effects and TNFR2 mediates anti-inflammatory effects. In the central nervous system, TNF signaling plays a dual role, which enhances inflammation via TNFR1 on immune cells while providing cytoprotection via TNFR2 on neural cells. In addition, the soluble form of TNFR1 and membrane-bound TNF also participate in the regulation to fine-tune the functions of target cells. Other factors that impact TNF signaling and MSC functions include the gender of the host, disease course, cytokine concentrations, and the length of treatment time. This review will introduce the fascinating progress in this aspect of research and discuss remaining questions and future perspectives.