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Graft-versus-host disease is one of the major transplant-related complications in allogeneic hematopoietic stem cell transplantation. Continued efforts have been made to prevent the occurrence of severe graft-versus-host disease by eliminating or suppressing donor-derived effector T cells. Conventional immunosuppression does not adequately prevent graft-versus-host disease, especially in mismatched transplants. Unfortunately, elimination of donor-derived T cells impairs stem cell engraftment, and delays immunologic reconstitution, rendering the recipient susceptible to post-transplant infections and disease relapse, with potentially lethal consequences. In this review, we discuss the role of dynamic immune regulation in controlling graft-versus-host disease, and how cell-based therapies are being developed using regulatory T cells and other tolerogenic cells for the prevention and treatment of graft-versus-host disease. In addition, advances in the design of cytoreductive conditioning regimens to selectively target graft-versus-host disease-inducing donor-derived T cells that have improved the safety of allogeneic stem cell transplantation are reviewed. Finally, we discuss advances in our understanding of the tolerogenic facilitating cell population, a phenotypically and functionally distinct population of bone marrow-derived cells which promote hematopoietic stem cell engraftment while reducing the risk of graft-versus-host disease.