To dissect therapeutic mechanisms of transplanted stem cells and develop exosome-based nanotherapeutics in treating autoimmune and neurodegenerative diseases, we assessed the effect of exosomes secreted from human mesenchymal stem cells (MSCs) in treating multiple sclerosis using an experimental autoimmune encephalomyelitis (EAE) mouse model. We found that intravenous administration of exosomes produced by MSCs stimulated by IFNγ (IFNγ-Exo) (i) reduced the mean clinical score of EAE mice compared to PBS control, (ii) reduced demyelination, (iii) decreased neuroinflammation, and (iv) upregulated the number of CD4+CD25+FOXP3+ regulatory T cells (Tregs) within the spinal cords of EAE mice. Co-culture of IFNγ-Exo with activated peripheral blood mononuclear cells (PBMCs) cells in vitro reduced PBMC proliferation and levels of pro-inflammatory Th1 and Th17 cytokines including IL-6, IL-12p70, IL-17AF, and IL-22 yet increased levels of immunosuppressive cytokine indoleamine 2,3-dioxygenase. IFNγ-Exo could also induce Tregs in vitro in a murine splenocyte culture, likely mediated by a third-party accessory cell type. Further, IFNγ-Exo characterization by deep RNA sequencing suggested that IFNγ-Exo contains anti-inflammatory RNAs, where their inactivation partially hindered the exosomes potential to induce Tregs. Furthermore, we found that IFNγ-Exo harbors multiple anti-inflammatory and neuroprotective proteins. These results not only shed light on stem cell therapeutic mechanisms but also provide evidence that MSC-derived exosomes can potentially serve as cell-free therapies in creating a tolerogenic immune response to treat autoimmune and central nervous system disorders