Granulation tissue formation constitutes a key step during wound healing of the skin and other organs. Granulation tissue concomitantly initiates regenerative M2 macrophages polarization, fibroblast proliferation, myofibroblast differentiation with subsequent contraction of the wound, new vessel formation, and matrix deposition. Impaired granulation tissue formation either leads to delayed wound healing or excessive scar formation, conditions with high morbidity and mortality. Accumulating evidence has demonstrated that mesenchymal stem cell (MSC)-based therapy is a promising strategy to ameliorate defects in granulation tissue formation and to successfully treat non-healing chronic wounds. In this review we give an updated overview of how therapeutically administered MSCs ensure a balanced granulation tissue formation, and furthermore discuss the cellular and molecular mechanisms underlying the adaptive responses of MSCs to cue in their direct neighborhood. Improved understanding of the interplay between the exogenous MSCs and their niche in granulation tissue will foster the development of MSC-based therapies tailored for difficult-to-treat non-healing wounds.