Mesenchymal stem cells (MSCs) display pleiotropic functions, which include secretion of soluble factors with immunosuppressive activity implicated in cancer progression. We compared the immunomodulatory effects on natural killer (NK) cells of paired intratumor (T)- and adjacent non-tumor tissue (N)-derived MSCs from patients with squamous cell lung carcinoma (SCC). We observed that T-MSCs were more strongly immunosuppressive than N-MSCs and affected both NK function and phenotype, as defined by CD56 expression. T-MSCs shifted NK cells toward the CD56 ^dim phenotype and differentially modulated CD56 ^bright/dim subset functions. Whereas MSCs affected both degranulation and activating receptor expression in the CD56 ^dim subset, they primarily inhibited interferon-γ production in the CD56 ^bright subset. Pharmacological inhibition of prostaglandin E2 (PGE2) synthesis and, in some MSCs, interleukin-6 (IL-6) activity restored NK function, whereas NK cell stimulation by PGE2 alone mimicked T-MSC-mediated immunosuppression. Our observations provide insight into how stromal responses to cancer dampen NK cell activity in human lung SCC.