It is estimated that, of the 7.9 million fractures sustained in the United States each year, 5% to 20% result in delayed or impaired healing requiring therapeutic intervention. Following fracture injury, there is an initial inflammatory response that plays a crucial role in bone healing; however, prolonged inflammation is inhibitory for fracture repair. The precise spatial and temporal impact of immune cells and their cytokines on fracture healing remains obscure. Some cytokines are reported to be proosteogenic while others inhibit bone healing. Cell-based therapy utilizing mesenchymal stromal cells (MSCs) is an attractive option for augmenting the fracture repair process. Osteoprogenitor MSCs not only differentiate into bone, but they also exert modulatory effects on immune cells via a variety of mechanisms. In this paper, we review the current literature on both in vitro and in vivo studies on the role of the immune system in fracture repair, the use of MSCs in the enhancement of fracture healing, and interactions between MSCs and immune cells. Insight into this paradigm can provide valuable clues in identifying cellular and noncellular targets that can potentially be modulated to enhance both natural bone healing and bone repair augmented by the exogenous addition of MSCs.