An inflammatory microenvironment may cause organ degenerative diseases and malignant tumors. However, the precise mechanisms of inflammation-induced diseases are not fully understood. Here we show that the proinflammatory cytokines interferon γ (IFN-γ) and tumor necrosis factor α (TNF-α) synergistically impair self-renewal and differentiation of mesenchymal stem cells (MSCs) via nuclear factor κB (NFκB)–mediated activation of Mothers against decapentaplegic homolog 7 (SMAD7) in ovariectomized (OVX) mice. More interestingly, a long-term elevated levels of IFN-γ and TNF-α result in significantly increased susceptibility to malignant transformation in MSCs through NFκB–mediated upregulation of the oncogenes c-Fos and c-Myc. Depletion of either IFN-γ or TNF-α in OVX mice abolishes MSC impairment and the tendency toward malignant transformation with no NFκB–mediated oncogene activation. Systemic administration of aspirin, which significantly reduces the levels of IFN-γ and TNF-α, results in blockage of MSC deficiency and tumorigenesis by inhibition of NF-κB/SMAD7 and NFκB/c-FOS and c-MYC pathways in OVX mice. In summary, this study reveals that inflammation factors, such as IFN-γ and TNF-α, synergistically induce MSC deficiency via NFκB/SMAD7 signaling and tumorigenesis via NFκB–mediated oncogene activation.