Mesenchymal stem cells (MSCs) can ameliorate symptoms in several neurodegenerative diseases. However, the toxic environment of a degenerating central nervous system (CNS) characterized by hypoxia, glutamate (Glu) excess and amyloid beta (Abeta) pathology may hamper the survival and regenerative/replacing capacities of engrafted stem cells. Indeed, human MSC (hMSC) exposed to hypoxia were disabled in (i) the capacity of their muscarinic receptors (mAChRs) to respond to acetylcholine (ACh) with a transient increase in intracellular [Ca(2+)], (ii) their capacity to metabolize Glu, reflected by a strong decrease in glutamine synthetase activity, and (iii) their survival on exposure to Glu. Cocultivation of MSC with PC12 cells expressing the amyloid precursor protein gene (APPsw-PC12) increased the release of IL-6 from MSC. HMSC exposed to erythropoietin (EPO) showed a cholinergic neuron-like phenotype reflected by increased cellular levels of choline acetyltransferase, ACh and mAChR. All their functional deficits observed under hypoxia, Glu exposure and APPsw-PC12 cocultivation were reversed by the application of EPO, which increased the expression of Wnt3a. EPO also enhanced the metabolism of Abeta in MSC by increasing their neprilysin content. Our data show that cholinergic neuron-like differentiation of MSC, their functionality and resistance to a neurotoxic environment is regulated and can be improved by EPO, highlighting its potential for optimizing cellular therapies of the CNS.