RATIONALE: Recent studies have suggested that both embryonic stem cells and adult bone marrow stem cells can participate in the regeneration and repair of diseased adult organs, including the lungs. However, the extent of airway epithelial remodeling with adult marrow stem cells is low, and there are no available in vivo data with embryonic stem cells. Human umbilical cord blood contains both hematopoietic and nonhematopoietic stem cells, which have been used clinically as an alternative to bone marrow transplantation for hematologic malignancies and other diseases. OBJECTIVES: We hypothesized that human umbilical cord blood stem cells might be an effective alternative to adult bone marrow and embryonic stem cells for regeneration and repair of injured airway epithelium. METHODS: Human cord blood was obtained from normal deliveries at the University of Vermont. Cultured plastic adherent cells were characterized as mesenchymal stem cells (MSCs) by flow cytometry and differentiation assays. Cord blood-derived MSCs (CB-MSCs) were cultured in specialized airway growth media or with specific growth factors, including keratinocyte growth factor and retinoic acid. mRNA and protein expression were analyzed with PCR and immunofluorescent staining. CB-MSCs were systematically administered to immunotolerant, nonobese diabetic/severe combined immunodeficiency (NOD-SCID) mice. Lungs were analyzed for presence of human cells. MEASUREMENTS AND MAIN RESULTS: When cultured in specialized airway growth media or with specific growth factors, CB-MSCs differentially expressed Clara cell secretory protein (CCSP), cystic fibrosis transmembrane conductance regulator (CFTR), surfactant protein C, and thyroid transcription factor-1 mRNA, and CCSP and CFTR protein. Furthermore, CB-MSCs were easily transduced with recombinant lentiviral vectors to express human CFTR. After systemic administration to immunotolerant, NOD-SCID, mice, rare cells were found in the airway epithelium that had acquired cytokeratin and human CFTR expression. CONCLUSIONS: CB-MSCs appear to be comparable to MSCs obtained from adult bone marrow in ability to express phenotypic markers of airway epithelium and to participate in airway remodeling in vivo.