BPD (bronchopulmonary dysplasia) is predominantly characterized by persistent abnormalities in lung structure and arrested lung development, but therapy can be palliative. While promising, the use of BMSC (bone marrow-derived mesenchymal stem cell) in the treatment of lung diseases remains controversial. We have assessed the therapeutic effects of BMSC in vitro and in vivo. In vitro co-culturing with injured lung tissue increased the migration-potential of BMSC; and SP-C (surfactant protein-C), a specific marker of AEC2 (type II alveolar epithelial cells), was expressed. Following intraperitoneal injection of BMSC into experimental BPD mice on post-natal day 7, it was found that BMSC can home to the injured lung, express SP-C, improve pulmonary architecture, attenuate pulmonary fibrosis and increase the survival rate of BPD mice. This work supports the notion that BMSC are of therapeutic benefit through the production of soluble factors at bioactive levels that regulate the pathogenesis of inflammation and fibrosis following hyperoxia. © The Author(s) Journal compilation © 2012 International Federation for Cell Biology.