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Background: Despite promise in preclinical models of acute respiratory distress syndrome (ARDS), mesenchymal stem cells (MSC) have failed to translate to therapeutic benefit in clinical trials. The MSC is a live cell medicine and interacts with the patient’s disease state. Here, we explored this interaction, seeking to devise strategies to enhance MSC therapeutic function. Methods: Human bone-marrow-derived MSCs were exposed to lung homogenate from healthy and E. coli-induced ARDS rat models. Apoptosis and functional assays of the MSCs were performed. Results: The ARDS model showed reduced arterial oxygenation, decreased lung compliance and an inflammatory microenvironment compared to controls. MSCs underwent more apoptosis after stimulation by lung homogenate from controls compared to E. coli, which may explain why MSCs persist longer in ARDS subjects after administration. Changes in expression of cell surface markers and cytokines were associated with lung homogenate from different groups. The anti-microbial effects of MSCs did not change with the stimulation. Moreover, the conditioned media from lung-homogenate-stimulated MSCs inhibited T-cell proliferation. Conclusions: These findings suggest that the ARDS microenvironment plays an important role in the MSC’s therapeutic mechanism of action, and changes can inform strategies to modulate MSC-based cell therapy for ARDS.