Human mesenchymal stem cells (MSC) hold great promise for cellular replacement therapies. Despite their contributing to phenotypically distinct cells in multiple tissues, controversy remains regarding whether the phenotype switch results from a true differentiation process. Here, we studied the events occurring during the first 120 h after human MSC transplantation into a large animal model. We demonstrate that MSC, shortly after engrafting different tissues, undergo proliferation and rapidly initiate the differentiative process, changing their phenotype into tissue-specific cells. Thus, the final level of tissue-specific cell contribution is not determined solely by the initial level of engraftment of the MSC within that organ, but rather by the proliferative capability of the ensuing tissue-specific cells into which the MSC rapidly differentiate. Furthermore, we show that true differentiation, and not cell fusion or transfer of mitochondria or membrane-derived vesicles between transplanted and resident cells, is the primary mechanism contributing to the change of phenotype of MSC upon transplantation.