Rheumatoid arthritis (RA) is a debilitating and painful inflammatory autoimmune disease characterised by the accumulation of leukocytes in the synovium, cartilage destruction and bone erosion. The immunomodulatory effects of bone marrow derived mesenchymal stem cells (MSCs) has been widely studied and the recent observations that syndecan-3 (SDC3) is selectively pro-inflammatory in the joint led us to hypothesise that SDC3 might play an important role in MSC biology. MSCs isolated from bone marrow of wild type and Sdc3−/− mice were used to assess immunophenotype, differentiation, adhesion and migration properties and cell signalling pathways. While both cell types show similar differentiation potential and forward scatter values, the cell complexity in wild type MSCs was significantly higher than in Sdc3−/− cells and was accompanied by lower spread surface area. Moreover, Sdc3−/− MSCs adhered more rapidly to collagen type I and showed a dramatic increase in AKT phosphorylation, accompanied by a decrease in ERK1/2 phosphorylation compared with control cells. In a mouse model of antigen-induced inflammatory arthritis, intraarticular injection of Sdc3−/− MSCs yielded enhanced efficacy compared to injection of wild type MSCs. In conclusion, our data suggest that syndecan-3 regulates MSC adhesion and efficacy in inflammatory arthritis, likely via induction of the AKT pathway.