Two different repair mechanisms of mesenchymal stem cells (MSCs) are suggested to participate in the repair of acute lung injury (ALI): (i) Cell engraftment mechanism, (ii) Paracrine/endocrine mechanism. However, the exact roles they play in the repair remain unclear. The aim of the study was to evaluate the role of paracrine/endocrine mechanism using a novel intrapleural delivery method of MSCs. Either 1 × 106 MSCs in 300 μl of PBS or 300 μl PBS alone were intrapleurally injected into rats with endotoxin-induced ALI. On days 1, 3 or 7 after injections, samples of lung tissues and bronchoalveolar lavage fluid (BALF) were collected from each rat for assessment of lung injury, biochemical analysis and histology. The distribution of MSCs was also traced by labelling the cells with 4′,6-diamidino-2-phenylindole dihydrochloride (DAPI). MSCs intrapleural injection significantly improved LPS-induced lung histopathology compared with PBS-treated group at day 3. There was also a significant decrease in total cell counts and protein concentration in BALF at day 7 in the MSCs -treated rats compared to PBS control group. Tracking the DAPI-marked MSCs showed that there were no exotic MSCs in the lung parenchyma. MSCs administration resulted in a down-regulation of pro-inflammatory response to endotoxin by reducing TNF-α both in the BALF and in the lung, while up-regulating the anti-inflammatory cytokine IL-10 in the lung. In conclusion, treatment with intrapleural MSCs administration markedly attenuates the severity of endotoxin-induced ALI. This role is mediated by paracrine/endocrine repair mechanism of MSCs rather than by the cell engraftment mechanism.