This study aimed to investigate the potential of mesenchymal stem cells (MSCs) in alleviating diabetic lung injury by decreasing inflammation, fibrosis and recovering tissue macrophage homeostasis. To induce pulmonary injuries in an in vivo murine model, we utilized a streptozotocin (STZ), and high-fat diet (HFD) induced diabetic C57 mouse model. Subsequently, human umbilical cord-derived MSCs (hUC-MSCs) were administered through the tail vein on a weekly basis for a duration of 4 weeks. In addition, in vitro experiments involved co-culturing of isolated primary abdominal macrophages from diabetic mice and high glucose-stimulated MLE-12 cells with hUC-MSCs. The objective was to evaluate if hUC-MSCs co-culturing could effectively mitigate cell inflammation and fibrosis. Following hUC-MSCs injection, diabetic mice displayed enhanced pulmonary functional parameters, reduced pulmonary fibrosis, and diminished inflammation. Notably, the dynamic equilibrium of lung macrophages shifted from the M1 phenotype to the M2 phenotype, accompanied by a notable reduction in various indicators associated with inflammation and fibrosis. Results from cell co-culturing experiments further supported this trend, demonstrating a reduction in inflammatory and fibrotic indicators. In conclusion, our findings suggest that hUC-MSCs treatment holds promise in mitigating diabetic pulmonary injury by significantly reducing inflammation, fibrosis and maintain tissue macrophage homeostasis within the lungs. This study sheds light on the therapeutic potential of hUC-MSCs in managing diabetic complications affecting the pulmonary system.