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Bone marrow-derived mesenchymal stem cells (MSCs) have been identified as one possible strategy for the treatment of chronic obstructive pulmonary disease (COPD). Our previous studies have demonstrated that MSC administration has therapeutic potential in airway inflammation and emphysema via a paracrine mechanism. We proposed that MSCs reverse the inflammatory process and restore impaired lung function through their interaction with macrophages. In our study, the rats were exposed to cigarette smoke (CS), followed by the administration of MSCs into the lungs for 5 weeks. Here we show that MSC administration alleviated airway inflammation and emphysema through the down-regulation of cyclooxygenase-2 (COX-2) and COX-2-mediated prostaglandin E2 (PGE2) production, possibly through the effect on alveolar macrophages. In vitro co-culture experiments provided evidence that MSCs down-regulated COX-2/PGE2 in macrophages through inhibition of the activation-associated phosphorylation of p38 MAPK and ERK. Our data suggest that MSCs may relieve airway inflammation and emphysema in CS-exposed rat models, through the inhibition of COX-2/PGE2 in alveolar macrophages, mediated in part by the p38 MAPK and ERK pathways. This study provides a compelling mechanism for MSC treatment in COPD, in addition to its paracrine mechanism.