A growing understanding of the complexity of the pathophysiology of acute lung injury (ALI)/acute respiratory distress syndrome (ARDS), coupled with advances in stem cell biology, has led to a renewed interest in the therapeutic potential of stem cells for this devastating disease. Mesenchymal stem cells appear closest to clinical translation, given the evidence that they may favourably modulate the immune response to reduce lung injury, while maintaining host immune-competence and also facilitating lung regeneration and repair. The demonstration that human mesenchymal stem cells exert benefit in the endotoxin-injured human lung is particularly persuasive. Endothelial progenitor cells also demonstrate promise in reducing endothelial damage, which is a key pathophysiological feature of ALI. Embryonic and induced pluripotent stem cells are at an earlier stage in the translational process, but offer the hope of directly replacing injured lung tissue. The lung itself also contains endogenous stem cells, which may ultimately offer the greatest hope for lung diseases, given their physiologic role in replacing and regenerating native lung tissues. However, significant deficits remain in our knowledge regarding the mechanisms of action of stem cells, their efficacy in relevant pre-clinical models, and their safety, particularly in critically ill patients. These gaps need to be addressed before the enormous therapeutic potential of stem cells for ALI/ARDS can be realised.