Molecules that physiologically control cell proliferation are often produced locally in tissues and are rapidly destroyed when they enter circulation. This allows local effects while avoiding interference with other systems. Unfortunately, it also limits the therapeutic use of these molecules via systemic delivery. We here demonstrate that, for the purpose of anticancer therapy, bone marrow-derived mesenchymal stem cells (MSCs) can produce biological agents locally at tumor sites. We show that the tumor microenvironment preferentially promotes the engraftment of MSCs as compared with other tissues. MSCs with forced expression of IFN-beta inhibited the growth of malignant cells in vivo. Importantly, this effect required the integration of MSCs into the tumors and could not be achieved by systemically delivered IFN-beta or by IFN-beta produced by MSCs at a site distant from the tumors. Our results indicate that MSCs may serve as a platform for delivery of biological agents in tumors.