Acute lung injury (ALI) is a syndrome caused by an excessive inflammatory response characterized by intractable hypoxemia both inside and outside the lung, for which effective therapeutic drugs are lacking. Atractylodis rhizoma, a traditional Chinese medicine, has excellent anti-inflammatory and antiviral properties in addition to protecting the integrity of the cellular barrier. However, few studies of Atractylodis rhizoma for the treatment of ALI have been published, and its mechanism of action remains unclear. In the present study, the chemical composition of the ethanolic extract of Atractylodis rhizoma (EEAR) was initially clarified by high performance liquid chromatography (HPLC), after which it was studied in vivo using a lipopolysaccharide (LPS)-induced ALI rat model. Treatment with EEAR significantly reduced the lung wet/dry (W/D) ratio, neutrophil infiltration, and malondialdehyde (MDA) and myeloperoxidase (MPO) formation, and enhanced superoxide dismutase (SOD) and glutathione (GSH) depletion in rats with ALI, thereby improving lung barrier function and effectively reducing lung injury. In addition, EEAR significantly reduced histopathological changes, decreased the expression of inflammatory factors (such as tumor necrosis factor-α (TNF-α), interleukin-1 beta (IL-1β), inducible nitric oxide synthase (INOS), and cyclooxygenase-2 (COX-2)), and inhibited the activation of the NF-κB signaling pathway, thus reducing inflammation. In addition, EEAR was found to also reduce oxidative stress in ALI by upregulating the expression of nuclear factor erythroid 2-related factor 2 (Nrf2) and its downstream proteins heme oxygenase-1 (HO-1) and NADPH quinone acceptor oxidoreductase 1 (NQO-1). EEAR also reduced LPS-induced inflammatory factor expression in THP-1 cells in vitro by inhibition of the NF-κB signaling pathway, and reduced damage from lipopolysaccharide (LPS)-induced oxidative stress in THP-1 cells by promoting the expression of Nrf2 and its downstream targets HO-1 and NQO-1, the molecular mechanism of which was consistent with in vivo observations. Therefore, we conclude that EEAR attenuates oxidative stress and inflammatory responses via TLR4/NF-κB and Keap1/Nrf2 signaling pathways to alleviate LPS-induced ALI, suggesting that Atractylodis Rhizoma is a potential drug candidate for the treatment of ALI.