Objective Meniscal regeneration was previously shown to be enhanced by injection of mesenchymal stem/stromal cells (MSCs) but the mode of action of the MSCs was not established. The aim of this study was to define how injection of MSCs enhances meniscal regeneration. Design A hemi-meniscectomy model in rats was used. Rat-MSCs (rMSCs) or human-MSCs (hMSCs) were injected into the right knee joint after the surgery, and PBS was injected into the left. The groups were compared macroscopically and histologically at 2, 4, and 8 w. The changes in transcription in both human and rat genes were assayed by species-specific microarrays and real-time RT-PCRs. Results Although the number of hMSCs decreased with time, hMSCs enhanced meniscal regeneration in a manner similar to rMSCs. hMSCs injection increased expression of rat type II collagen (rat-Col II), and inhibited osteoarthritis progression. The small fraction of hMSCs were activated to express high levels of a series of genes including Indian hedgehog (Ihh), parathyroid hormone-like hormone (PTHLH), and bone morphogenetic protein 2 (BMP2). The presence of hMSCs triggered the subsequent expression of rat-Col II. An antagonist of hedgehog signaling inhibited the expression of rat-Col II and an agonist increased expression of rat-Col II in the absence of hMSCs. Conclusions Despite rapid reduction in cell numbers, intra-articular injected hMSCs were activated to express Ihh, PTHLH, and BMP2 and contributed to meniscal regeneration. The hedgehog signaling was essential in enhancing the expression of rat-Col II, but several other factors provided by the hMSCs probably contributed to the repair.