Mesenchymal stem/stromal cells (MSCs) have great clinical potential in modulating inflammation and promoting tissue repair. Human embryonic stem cells (hESCs) have recently emerged as a potentially superior cell source for MSCs. However, the generation methods reported so far vary greatly in quality and efficiency. Here, we describe a novel method to rapidly and efficiently produce MSCs from hESCs via a trophoblast-like intermediate stage in approximately 11-16 days. We term these cells "T-MSCs" and show that T-MSCs express a phenotype and differentiation potential minimally required to define MSCs. T-MSCs exhibit potent immunomodulatory activity in vitro as they can remarkably inhibit proliferation of cocultured T and B lymphocytes. Unlike bone marrow MSCs, T-MSCs do not have increased expression of inflammatory mediators in response to IFNγ. Moreover, T-MSCs constitutively express a high level of the immune inhibitory ligand PD-L1 and elicit strong and durable efficacy in two distinct animal models of autoimmune disease, dextran sulfate sodium induced colitis, and experimental autoimmune encephalomyelitis, at doses near those approved for clinical trials. Together, we present a simple and fast derivation method to generate MSCs from hESCs, which possess potent immunomodulatory properties in vitro and in vivo and may serve as a novel and ideal candidate for MSC-based therapies.