Mesenchymal stem cell derived extracellular vesicles (MSC-EVs) are bioactive particles that evoke beneficial responses in recipient cells. We identified a role for MSC-EV in immune modulation and cellular salvage in a model of SARS-CoV-2 induced acute lung injury (ALI) using pulmonary epithelial cells and exposure to cytokines or the SARS-CoV-2 receptor binding domain (RBD). Whereas RBD or cytokine exposure caused a pro-inflammatory cellular environment and injurious signaling, impairing alveolar-capillary barrier function, and inducing cell death, MSC-EVs reduced inflammation and reestablished target cell health. Importantly, MSC-EV treatment increased active ACE2 surface protein compared to RBD injury, identifying a previously unknown role for MSC-EV treatment in COVID-19 signaling and pathogenesis. The beneficial effect of MSC-EV treatment was confirmed in an LPS-induced rat model of ALI wherein MSC-EVs reduced pro-inflammatory cytokine secretion and respiratory dysfunction associated with disease. MSC-EV administration was dose-responsive, demonstrating a large effective dose range for clinical translation. These data provide direct evidence of an MSC-EV-mediated improvement in ALI and contribute new insights into the therapeutic potential of MSC-EVs in COVID-19 or similar pathologies of respiratory distress.