Rationale Acute respiratory distress syndrome (ARDS) is a lethal complication of severe bacterial pneumonia due to the inability to dampen overexuberant immune responses without compromising pathogen clearance. Both of these processes involve tissue-resident and bone marrow (BM)-recruited macrophage (M phi) populations which can be polarised to have divergent functions. Surprisingly, despite the known immunomodulatory properties of mesenchymal stem cells (MSCs), simultaneous interactions with tissue-resident and recruited BMM phi populations are largely unexplored. Objectives We assessed the therapeutic use of human placental MSCs (PMSCs) in severe bacterial pneumonia with elucidation of the roles of resident alveolar M phi s (AM phi s) and BMM phi s. Methods We developed a lethal, murine pneumonia model using intratracheal infection of a clinically relevant Klebsiella pneumoniae (KP) strain with subsequent intravenous human PMSC treatment. Pulmonary AM phi and recruited BMM phi analyses, histological evaluation, bacterial clearance and mice survival were assessed. To elucidate the role of resident AM phi s in improving outcome, we performed AM phi depletion in the KP-pneumonia model with intratracheal clodronate pretreatment. Measurements and main results Human PMSC treatment decreased tissue injury and improved survival of severe KP-pneumonia mice by decreasing the presence and function of recruited M1 BMM phi while preserving M2 AM phi s and enhancing their antibacterial functions. Interestingly, PMSC therapy failed to rescue AM phi-depleted mice with KP pneumonia, and PMSC-secreted IL-1 beta was identified as critical in increasing AM phi antibacterial activities to significantly improve pathogen clearance-especially bacteraemia-and survival. Conclusions Human PMSC treatment preferentially rescued resident M2 AM phi s over recruited M1 BMM phi s with overall M2 polarisation to improve KP-related ARDS survival.