Chronic lung diseases cause serious morbidity and mortality, and effective treatments are limited. Induced pluripotent stem cells (iPSCs) lacking the reprogramming factor c-Myc (3-gene iPSCs) can be used as ideal tools for cell-based therapy because of their low level of tumorigenicity. In this study, we investigated whether 3-gene iPSC transplantation could rescue bleomycin-induced pulmonary fibrosis. After the induction of pulmonary inflammation and fibrosis via intratracheal delivery of bleomycin sulfate, mice were i.v. injected with 3-gene iPSCs or conditioned medium (iPSC-CM) at 24 h after bleomycin treatment. Administration of either 3-gene iPSCs or iPSC-CM significantly attenuated collagen content and myeloperoxidase activity, diminished neutrophil accumulation, and rescued pulmonary function and recipient survival after bleomycin treatment. Notably, both treatments reduced the levels of inflammatory cytokines and chemokines, including interleukin 1 (IL-1), IL-2, IL-10, tumor necrosis factor-α, and monocyte chemotactic protein 1 yet increased the production of the antifibrotic chemokine interferon-γ–induced protein 10 (IP-10) in bleomycin-injured lungs. Furthermore, IP-10 neutralization via treatment with IP-10–neutralizing antibodies ameliorated the reparative effect of either 3-gene iPSCs or iPSC-CM on collagen content, neutrophil and monocyte accumulation, pulmonary fibrosis, and recipient survival. Intravenous delivery of 3-gene iPSCs/iPSC-CM alleviated the severity of histopathologic and physiologic impairment in bleomycin-induced lung fibrosis. The protective mechanism was partially mediated by the early moderation of inflammation, reduced levels of cytokines and chemokines that mediate inflammation and fibrosis, and an increased production of antifibrotic IP-10 in the injured lungs.