Acute respiratory distress syndrome (ARDS) contributes to higher mortality worldwide. Human umbilical cord-derived mesenchymal stem cells (hUC-MSCs) have immunomodulatory and regenerative potential. However, the effects of hUC-MSCs as an ARDS treatment remain unclear. We investigated the role of hUC-MSCs in the differentiation of type II alveolar epithelial cells (AECII) by regulating Yes-associated protein (YAP) in ARDS. Male C57BL/6JNarl mice were intratracheally (i.t.) administered lipopolysaccharide (LPS) to induce an ARDS model, followed by a single intravenous (i.v.) dose of hUC-MSCs. hUC-MSCs improved pulmonary function, decreased inflammation on day 3, and mitigated lung injury by reducing the lung injury score and increasing lung aeration (%) in mice on day 7 (p < 0.05). hUC-MSCs inactivated YAP on AECII and facilitated cell differentiation by decreasing Pro-surfactant protein C (Pro-SPC) and galectin 3 (LGALS3) while increasing podoplanin (T1α) in lungs of mice (p < 0.05). In AECII MLE-12 cells, both coculture with hUC-MSCs after LPS exposure and the YAP inhibitor, verteporfin, reduced Pro-SPC and LGALS3, whereas the YAP inhibitor increased T1α expression (p < 0.05). In conclusion, hUC-MSCs ameliorated lung injury of ARDS and regulated YAP to facilitate AECII differentiation.