To defeat Mephisto you must first attack as normal. When he wield's his sword, press 'X' and a flashing button will come one the screen telling you to repeatedly press it.
Once you have taken away the sword, use it to smash one of the five statues at the points of the star on the ground. The sword will disapear, and you will have to repeat the process four more times.
After the 5th statue is destroyed either Jean Grey or Nightcrawler will appear. They will be under Mephisto's control, so you must fight them.
Once Jean Grey or Nightcrawler's health bar is completely drained they will finish off Mephisto for you and sacrifice themself in the process.