The Acute Respiratory Distress Syndrome (ARDS) is a devastating clinical disorder characterised by excessive inflammation in the alveolar compartment resulting in oedema of the airspaces due to loss of integrity in the alveolar epithelial-endothelial barrier. ARDS is associated with high mortality rates and there are currently no effective pharmacological therapies available. Human Mesenchymal Stromal Cells (hMSCs) are a promising candidate therapy which are currently being investigated in clinical trials for ARDS. However their mechanisms of effects in lung injury are not fully elucidated. A fuller understanding of these mechanisms may highlight novel therapeutic targets, identify potency assays to inform hMSC donor selection or biomarkers to assess their efficacy in clinical samples. The alveolar macrophage (AM) is key to orchestrating the inflammatory response in lung injury highlighting the AM as an ideal therapeutic target. hMSCs are known for their immunomodulatory capacity and so it was hypothesised that hMSCs could modulate human macrophage function to adopt a more anti-inflammatory phenotype. The aims of this project were to investigate the effect of hMSCs on human macrophage phenotype and function and to determine the mechanisms of these effects. hMSCs were able to promote an anti-inflammatory (M2-like) macrophage phenotype in lipopolysaccharide or ARDS patient bronchoalveolar lavage fluid-treated human macrophages. This phenotype was characterised by a dampened inflammatory cytokine secretory profile, increased expression of the classical M2 macrophage marker CD206 and enhanced phagocytic capacity. Blocking hMSC-derived extracellular vesicle (EV) uptake by human macrophages using anti-CD44 antibody reversed these effects. Moreover, the adoptive transfer of murine AMs which had been pre-treated with hMSC-derived EVs was protective in endotoxin-induced lung injury in vivo highlighting the AM as a key cellular mediator of hMSC beneficial effects. A proportion of hMSC-EVs were found to contain mitochondria which were transferred to human macrophages in vitro facilitating hMSCs modulatory effects through the enhancement of macrophage mitochondrial oxidative phosphorylation. These data report a novel mechanism by which hMSCs modulate macrophage phenotype in in vitro and in vivo models of ARDS.