Liver transplantation is the most effective treatment for advanced liver disease, but its application is restricted. Cell therapy provides a fresh approach for treating liver cirrhosis. The immunological superiority and stem cell characteristics of mesenchymal stem cells (MSCs) from bone marrow, umbilical cord, adipose tissue, or dental tissues might allow them to perform well as alternative cell therapy treatments. Many previous animal experiments and clinical studies of liver disease have been reported and have demonstrated the efficacy and safety of MSCs therapy; no serious side effects or complications were noted, but not all trials have shown efficacy. Potential mechanisms of action, for example, secreting cytokines and growth factors, promoting liver regeneration, inhibiting inflammation in the liver, facilitating the degradation of excessive extracellular matrix (ECM) and differentiating into multi-lineage cells, could account for how MSCs therapy helps improve liver function. However, exploring the mechanism of action still requires further study, and a multitude of problems still await solutions in clinical practice. The use of MSCs in treating liver disease shows broad potential as well as undoubted challenges. In this paper, we will focus on the current possible mechanisms by which bone marrow mesenchymal stem cells (BM-MSCs) improve liver function, show the relationship between the application of MSCs and the occurrence of liver tumors and hepatic fibrosis, and present recent controversies and prospects for the treatment of liver cirrhosis.