Acute lung injury (ALI) or acute respiratory distress syndrome remains a major cause of morbidity and mortality in hospitalized patients. The pathophysiology of ALI involves complex interactions between the inciting event, such as pneumonia, sepsis or aspiration, and the host immune response resulting in lung protein permeability, impaired resolution of pulmonary oedema, an intense inflammatory response in the injured alveolus and hypoxemia. In multiple preclinical studies, adult stem cells have been shown to be therapeutic due to both the ability to mitigate injury and inflammation through paracrine mechanisms and perhaps to regenerate tissue by virtue of their multi-potency. These characteristics have stimulated intensive research efforts to explore the possibility of using stem or progenitor cells for the treatment of lung injury. A variety of stem or progenitor cells have been isolated, characterized and tested experimentally in preclinical animal models of ALI. However, questions remain concerning the optimal dose, route and the adult stem or progenitor cell to use. Here, the current mechanisms underlying the therapeutic effect of stem cells in ALI as well as the questions that will arise as clinical trials for ALI are planned are reviewed.