While mesenchymal stem cells (MSCs) have repeatedly demonstrated significant therapeutic potential in numerous preclinical models, their clinical translation has been greatly impeded by variability in therapeutic responses. This variability is often attributed to donor and source heterogeneity and limited expansion potential. Furthermore, MSCs can exhibit limited in vivo persistence due to clearance by host immune cells, which can also contribute to deficient therapeutic responses. Induced pluripotent stem cell (iPSC)-derived MSCs (iMSCs) promise to directly address many of the fundamental challenges facing MSC translation. We have previously shown that iMSCs generated using mRNA reprogramming exhibit ~4-fold greater population doublings in vitro relative to tissue-derived MSCs and can significantly attenuate the severity of sepsis-induced acute lung injury in an ovine model of acute respiratory distress syndrome (ARDS). In addition to improved consistency and therapeutic potency, the upstream iPSCs are an ideal platform for cell engineering applications, where a clonal population of edited cells is desired. Here, we report the development of a beta 2 microglobulin-knockout (B2M-KO) iMSC line with enhanced immunosuppressive activity and stealthing features that may further augment the therapeutic potential of MSCs in treating inflammatory diseases by precluding batch-to-batch inconsistencies, promoting in vivo persistence, and enhancing the effector function of the cells. B2M was inactivated in iPSCs by introducing a biallelic 14 bp deletion at exon 2 of the B2M gene using mRNA encoding NoveSlice™, a proprietary dimerizing chromatin-context-sensitive gene-editing endonuclease. Following colony selection and knockout verification via amplicon sequencing, B2M-KOiPSCs were differentiated to B2M-KO iMSCs using our previously published protocols. Successful MSC differentiation was confirmed by flow cytometry (CD90+, CD73+, CD105+, TRA-1-60-, TRA-1-80-, CD34-) and trilineage differentiation (adipogenesis, osteogenesis, and chondrogenesis). B2M-KO iMSCs displayed no evidence of HLA-I or HLA-II expression both before and after interferon gamma (IFNγ) stimulation, whereas wild-type iMSCs expressed HLA-I (59% HLA-ABC) and no HLA-II (0% HLA-DR) prior to IFNγ stimulation and both HLA-I (99%) and HLA-II (94%) after IFNγ stimulation. Additionally, B2M-KO iMSCs significantly upregulated the immunoregulatory enzyme Indoleamine 2,3-dioxygenase 1 (IDO1) upon IFNγ stimulation relative to wild-type iMSCs as demonstrated by both western analysis and immunofluorescence staining. The immunomodulatory potential of the B2M-KO iMSCs was evaluated using a PBMC-proliferation assay. Cells were co-cultured with CFSE-labeled PBMCs in the presence of a CD3/CD28 T cell stimulator for 96 hours. Cells co-cultured with B2M-KO iMSCs exhibited significant reduction in PBMC proliferation (92% suppression), as compared to wild-type iMSCs (82% suppression; p=0.04) and tissue-derived MSCs (40% suppression; p<0.0001). B2M-KO iMSCs are more likely to evade immune clearance and exert their immunomodulatory effects, as demonstrated by their enhanced sensitivity of IDO1 expression and their improved ability to inhibit PBMC proliferation. Our data suggest that B2M-KO iMSCs may be a promising therapeutic agent for T-cell mediated autoimmune and inflammatory indications.