Mesenchymal stromal cells (MSCs) or their media (MSC-M) were reported to reverse acute lung injury (ALI)-induced decrease of alveolar fluid clearance. To determine the mechanisms by which MSC-M exerts its beneficial effect, an in vitro model of alveolar epithelial injury was created by exposing primary rat alveolar epithelial cells (AEC) to hypoxia (3%O₂) plus cytomix, a combination of IL-1β, TNF-α and IFN-. MSC-M was collected from human MSC exposed for 12 hours to either normoxia (MSC-M) or to hypoxia plus cytomix (HCYT-MSC-M). This latter condition was used to model the effect of alveolar inflammation and hypoxia on paracrine secretion of MSC in the injured lung. Comparison of paracrine soluble factors in MSC media showed that interleukin-1 receptor antagonist and prostaglandin E2 were markedly increased while keratinocyte growth factor (KGF) was 2-fold lower in HCYT-MSC-M compared to MSC-M. In AEC, hypoxia plus cytomix increased protein permeability, reduced amiloride-sensitive short-circuit current (AS-I_sc) and also decreased the number of α-ENaC subunits in the apical membrane. To test the effects of MSC media, MSC-M and HCYT-MSC-M were added for an additional 12 hours to AEC exposed to hypoxia plus cytomix. MSC-M and HCYT-MSC-M completely restored epithelial permeability to normal. MSC-M, but not HCYT-MSC-M, significantly prevented the hypoxia plus cytomix-induced decrease of ENaC activity and restored apical α-ENaC channels. Interestingly, KGF-deprived MSC-M was unable to restore amiloride-sensitive sodium transport, indicating a possible role for KGF in the beneficial effect of MSC-M. These results indicate that MSC-M may be a preferable therapeutic option for ALI.