Highly pathogenic avian influenza viruses can cause severe forms of acute lung injury (ALI) in humans, where pulmonary flooding leads to respiratory failure. The therapeutic benefits of bone marrow mesenchymal stromal cells (MSCs) have been demonstrated in a model of ALI due to influenza A(H5N1) virus. However, clinical translation is impractical and limited by a decline in efficacy as the age of the donor increases. Umbilical cord MSCs (UC-MSCs) are easier to obtain by comparison, and their primitive source may offer more-potent therapeutic effects. Here we investigate the therapeutic efficacy of UC-MSCs on the mechanisms of pulmonary edema formation and alveolar fluid clearance and protein permeability of A(H5N1)-infected human alveolar epithelial cells. UC-MSCs were also tested in a mouse model of influenza ALI. We found that UC-MSCs were effective in restoring impaired alveolar fluid clearance and protein permeability of A(H5N1)-infected human alveolar epithelial cells. UC-MSCs consistently outperformed bone marrow MSCs, partly because of greater growth factor secretion of angiopoietin 1 and hepatocyte growth factor. Conditioned UC-MSC medium and UC-MSC exosomes were also able to recapitulate these effects. However, UC-MSCs only slightly improved survival of A(H5N1)-infected mice. Our results suggest that UC-MSCs are effective in restoring alveolar fluid clearance and protein permeability in A(H5N1)-associated ALI and confer functional in addition to practical advantages over conventional bone marrow MSCs.