Acute lung injury (ALI) and acute respiratory distress syndrome (ARDS) are accompanied by high mortality rates and few effective treatments. Transplantation of human placental mesenchymal stem cells (hPMSCs) may attenuate ALI and the mechanism is still unclear. Our study aimed to elucidate the potential protective effect and therapeutic mechanism of hPMSCs against lipopolysaccharide (LPS)-induced ALI, An ALI model was induced by tracheal instillation of LPS into wild-type (WT) and angiotensin-converting enzyme 2 (ACE2) knockout (KO) male mice, followed by injection of hPMSCs by tail vein. Treatment with hPMSCs improved pulmonary histopathological injury, reduced pulmonary injury scores, decreased leukocyte count and protein levels in bronchoalveolar lavage fluid(BALF), protected the damaged alveolar epithelial barrier, and reversed LPS-induced upregulation of pro-inflammatory factors Interleukin-6 (IL-6) and Tumor necrosis factor-α(TNF-α) and downregulation of anti-inflammatory factor Interleukin-6(IL-10) in BALF. Moreover, administration of hPMSCs inhibited Angiotensin (Ang)II activation and promoted the expression levels of ACE2 and Ang (1–7) in ALI mice. Pathological damage, inflammation levels, and disruption of alveolar epithelial barrier in ALI mice were elevated after the deletion of ACE2 gene, and the Renin angiotensin system (RAS) imbalance was exacerbated. The therapeutic effect of hPMSCs was significantly reduced in ACE2 KO mice. Our findings suggest that ACE2 plays a key role in hPMSCs repairing the alveolar epithelial barrier to protect against ALI, laying a new foundation for the clinical treatment of ALI.