Mesenchymal stem cells (MSCs) show promising potential in cell-based therapies for wound repair and tissue engineering. However, their applications are hindered by our limited understanding of the detailed regulation of the cell fates in vitro and in vivo. To investigate the relationship between MSCs and Trop2, a protein overexpressed in cancer cells, we constructed a Trop2 gene knockout mouse by homologous recombination. Herein, we report that Trop2 is expressed exclusively on the MSC membrane and is involved in the regulation of proliferation and differentiation of MSCs. The proliferation of MSCs in Trop2 KO mice was significantly inhibited with prolonged cellular doubling time and reduced cell numbers entering the S phase. Trop2 deficiency impaired the differentiation of MSCs by significant reduction of adipogenesis and osteogenesis. AKT activation was impaired and cyclin D1 expression was downregulated in the Trop2-deficient MSCs, resulting in significant delay in cell cycle progression and inhibition of MSC self-renewal. Collectively, our findings help to establish a close functional link between Trop2 and MSCs, and to provide a tool for future investigation of Trop2 in other types of stem cells.