Human amniotic epithelial cells (hAEC) isolated from term placenta have stem cell-like properties, differentiate into tissue specific cells and reduce lung and liver inflammation and fibrosis following transplantation into disease models established in mice. These features together with their low immunogenicity and immunosuppressive properties make hAEC an attractive source of cells for potential therapeutic applications. However, generation of large cell numbers required for therapies through serial expansion in xenobiotic-free media may be a limiting factor. We investigated if hAEC could be expanded in xenobiotic-free media and if expansion altered their differentiation capacity, immunophenotype, immunosuppressive properties and production of immunomodulatory factors. Serial expansion in xenobiotic-free media was limited with cumulative cell numbers and population doubling times significantly lower than controls maintained in fetal calf serum. The epithelial morphology of primary hAEC changed into mesenchymal-stromal like cells by passage 4-5 (P4-P5) with down regulation of epithelial markers CK7, CD49f, EpCAM and E-cadherin and elevation of mesenchymal-stromal markers CD44, CD105, CD146 and vimentin. The P5 hAEC expanded in xenobiotic-free medium differentiated into osteocyte and alveolar epithelium-like cells, but not chondrocyte, hepatocyte, alpha- and beta-pancreatic-like cells. Expression of HLA Class IA, Class II and co-stimulatory molecules CD80, CD86 and CD40 remained unaltered. The P5 hAEC suppressed mitogen stimulated T cell proliferation, but were less suppressive compared with primary hAEC at higher splenocyte ratios. Primary and P5 hAEC did not secrete the immunosuppressive factors IL-10 and HGF, whereas TGF-beta1 and HLA-G were reduced and IL-6 elevated in P5 hAEC. These findings suggest that primary and expanded hAEC may be suitable for different cellular therapeutic applications.