Phosgene exposure may result in acute lung injury (ALI) with high mortality. Emerging evidence suggests that mesenchymal stem cells (MSCs) have a therapeutic potential against ALI. CXC chemokine receptor 7 (CXCR7) has been identified as a receptor of stromal-cell-derived factor 1 (SDF1) involved in MSC migration and may be an important mediator of the therapeutic effects of MSCs on ALI. In our study, we initially constructed a lentiviral vector overexpressing CXCR7 and then successfully transduced it into rat bone marrow-derived MSCs (resulting in MSCs-CXCR7). We found that ALI and the wet-to-dry ratio significantly decreased in the phosgene-exposed rats after administration of MSCs-CXCR7 or MSCs-GFP. Indeed, treatment with MSCs-CXCR7 caused further improvement. Moreover, injection of MSCs-CXCR7 significantly facilitated MSC homing to injured lung tissue. Meanwhile, overexpression of CXCR7 promoted differentiation of MSCs into type II alveolar epithelial (AT II) cells and enhanced the ability of MSCs to modulate the inflammatory response in phosgene-induced ALI. Taken together, our findings suggest that CXCR7-overexpressing MSCs may markedly facilitate treatment of phosgene-induced ALI (P-ALI) in rats.