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Neuroinflammation is a critical pathogenic driver in a wide spectrum of neurological disorders, contributing to significant morbidity and presenting a formidable therapeutic challenge. Among emerging regenerative approaches, mesenchymal stem cells (MSCs) have garnered significant attention for their potent capacity to modulate this detrimental immune response, offering hope for conditions ranging from acute brain injury to chronic neurodegeneration. This review aims to comprehensively synthesize the current understanding of how MSCs and their secretome, particularly extracellular vesicles (EVs), therapeutically modulate neuroinflammation. We seek to elucidate the key molecular and cellular mechanisms of action and to critically evaluate the evidence for these therapies across various neurological disease models. This review synthesizes the evolving literature on MSC-mediated immunomodulation, highlighting the therapeutic transition from cell replacement to secretome-based strategies. We examine pivotal studies elucidating the molecular mechanisms by which MSCs and their secretome regulate glial phenotypes and inflammatory pathways, preserve blood-brain barrier integrity, and modulate peripheral immune responses. Furthermore, we critically analyze therapeutic efficacy across preclinical models of acute and chronic neurological disorders and assess the current status of clinical translation. The primary therapeutic action of MSCs is mediated by their paracrine secretome, not cell replacement. Key findings demonstrate that MSC-derived EVs deliver bioactive cargo (e.g., microRNAs, TSG-6) that actively reprograms microglia and astrocytes from a pro-inflammatory to a neuroprotective phenotype and suppresses critical inflammatory signaling pathways, such as TLR4/NF-κB and the NLRP3 inflammasome, thereby reducing neuronal damage, preserving blood-brain barrier integrity, and fostering an environment conducive to endogenous repair. MSCs and their cell-free secretome represent a promising therapeutic platform for neurological disorders by directly targeting neuroinflammation. While clinical translation is advancing, significant challenges in standardization, manufacturing, and regulatory approval must be addressed. Future progress will depend on developing next-generation, potentially bioengineered, secretome-based products with defined potency to bring this regenerative strategy from the laboratory to the clinic.