Recent studies have suggested that bone marrow-derived multipotent mesenchymal stem cells (MSCs) may have therapeutic applications in multiple clinical disorders including myocardial infarction, diabetes, sepsis, and hepatic and acute renal failure. Here, we tested the therapeutic capacity of human MSCs to restore alveolar epithelial fluid transport and lung fluid balance from acute lung injury (ALI) in an ex vivo perfused human lung preparation injured by E. coli endotoxin. Intra-bronchial instillation of endotoxin into the distal airspaces resulted in pulmonary edema with the loss of alveolar epithelial fluid transport measured as alveolar fluid clearance. Treatment with allogeneic human MSCs or its conditioned medium given 1 h following endotoxin-induced lung injury reduced extravascular lung water, improved lung endothelial barrier permeability and restored alveolar fluid clearance. Using siRNA knockdown of potential paracrine soluble factors, secretion of keratinocyte growth factor was essential for the beneficial effect of MSCs on alveolar epithelial fluid transport, in part by restoring amiloride-dependent sodium transport. In summary, treatment with allogeneic human MSCs or the conditioned medium restores normal fluid balance in an ex vivo perfused human lung injured by E. coli endotoxin.