Bronchopulmonary dysplasia, the chronic lung disease of prematurity, is the most common complication in extremely premature infants (born before 28 wk gestation). Despite advances in perinatal care, modern clinical management remains devoid of therapies specifically promoting lung repair and lung growth. Recent progress in stem cell biology has uncovered the promise of stem/progenitor cells to repair damaged organs. Contrary to the original theory that stem cells engraft and repopulate the damaged organ, evidence suggests that stem cells act via a paracrine mechanism. This review highlights the preclinical evidence for the therapeutic potential of cell-based therapies in animal models of neonatal chronic lung injury and the multiple therapeutic avenues offered by soluble stem cell-derived factors.