Bone marrow-derived mesenchymal stem cells (MSCs), which have beneficial effects in acute lung injury (ALI), can serve as a vehicle for gene therapy. Angiotensin-converting enzyme 2 (ACE2), a counterregulatory enzyme of ACE that degrades angiotensin (Ang) II into Ang 1-7, has a protective role against ALI. Because ACE2 expression is severely reduced in the injured lung, a therapy targeted to improve ACE2 expression in lung might attenuate ALI. We hypothesized that MSCs overexpressing ACE2 would have further benefits in lipopolysaccharide (LPS)-induced ALI mice, when compared with MSCs alone. MSCs were transduced with ACE2 gene (MSC-ACE2) by a lentiviral vector and then infused into wild-type (WT) and ACE2 knockout (ACE2(-/y)) mice following an LPS-induced intratracheal lung injury. The results demonstrated that the lung injury of ALI mice was alleviated at 24 and 72 h after MSC-ACE2 transplantation. MSC-ACE2 improved the lung histopathology and had additional anti-inflammatory effects when compared with MSCs alone in both WT and ACE2(-/y) ALI mice. MSC-ACE2 administration also reduced pulmonary vascular permeability, improved endothelial barrier integrity, and normalized lung eNOS expression relative to the MSC group. The beneficial effects of MSC-ACE2 could be attributed to its recruitment into the injured lung and enhanced local expression of ACE2 protein without changing the serum ACE2 levels after MSC-ACE2 transplantation. The biological activity of the increased ACE2 protein decreased the Ang II amount and increased the Ang 1-7 level in the lung when compared with the ALI and MSC-only groups, thereby inhibiting the detrimental effects of accumulating Ang II. Therefore, compared to MSCs alone, the administration of MSCs overexpressing ACE2 resulted in a further improvement in the inflammatory response and pulmonary endothelial function of LPS-induced ALI mice. These additional benefits could be due to the degradation of Ang II that accompanies the targeted overexpression of ACE2 in the lung.