Background: Lung fibrosis is considered as an end stage for many lung diseases including lung inflammatory disease, autoimmune diseases and malignancy. There are limited therapeutic options with bad prognostic outcome. The aim of this study was to explore the effect of mesenchymal stem cells (MSCs) derived from bone marrow on Bleomycin (BLM) induced lung fibrosis in albino rats. Methods: 30 adult female albino rats were distributed randomly into 4 groups; negative control group, Bleomycin induced lung fibrosis group, lung fibrosis treated with bone marrow-MSCs (BM-MSCs) and lung fibrosis treated with cell free media. Lung fibrosis was induced with a single dose of intratracheal instillation of BLM. BM-MSCs or cell free media were injected intravenously 28 days after induction and rats were sacrificed after another 28 days for assessment. Minute respiratory volume (MRV), forced vital capacity (FVC) and forced expiratory volume 1 (FEV1) were recorded using spirometer (Power lab data acquisition system). Histological assessment was performed by light microscopic examination of H&E, and Masson’s trichrome stained sections and was further supported by morphometric studies. In addition, electron microscopic examination to assess ultra-structural changes was done. Confocal Laser microscopy and PCR were used as tools to ensure MSCs homing in the lung. Results: Induction of lung fibrosis was confirmed by histological examination, which revealed disorganized lung architecture, thickened inter-alveolar septa due excessive collagen deposition together with inflammatory cellular infiltration. Moreover, pneumocytes depicted variable degenerative changes. Reduction in MRV, FVC and FEV1 were recorded. BM-MSCs treatment showed marked structural improvement with minimal cellular infiltration and collagen deposition and hence restored lung architecture, together with lung functions. Conclusion: MSCs are promising potential therapy for lung fibrosis that could restore the normal structure and function of BLM induced lung fibrosis. Electronic supplementary material The online version of this article (10.1007/s13770-020-00294-0) contains supplementary material, which is available to authorized users.