Novel therapies are needed for bronchopulmonary dysplasia (BPD) because no effective treatment exists. Mesenchymal stromal cell extracellular vesicles (MSC-sEVs) have therapeutic efficacy in a mouse pup neonatal hyperoxia BPD model. We tested the hypothesis that MSC-sEVs will improve lung functional and structural development in mechanically ventilated preterm lambs. Preterm lambs (∼129 days; equivalent to human lung development at ∼28 wk gestation) were exposed to antenatal steroids, surfactant, caffeine, and supported by mechanical ventilation for 6-7 days. Lambs were randomized to blinded treatment with either MSC-sEVs (human bone marrow MSC-derived; 2 × 10 particles iv; = 8; 4 F/4 M) or vehicle control (saline iv; 4 F/4 M) at 6 and 78 h post delivery. Physiological targets were pulse oximetry O saturation 90-94% ([Formula: see text] 60-90 mmHg), [Formula: see text] 45-60 mmHg (pH 7.25-7.35), and tidal volume 5-7 mL/kg. MSC-sEVs-treated preterm lambs tolerated enteral feedings compared with vehicle control preterm lambs. Differences in weight patterns were statistically significant. Respiratory severity score, oxygenation index, A-a gradient, distal airspace wall thickness, and smooth muscle thickness around terminal bronchioles and pulmonary arterioles were significantly lower for the MSC-sEVs group. S/F ratio, radial alveolar count, secondary septal volume density, alveolar capillary surface density, and protein abundance of VEGF-R2 were significantly higher for the MSC-sEVs group. MSC-sEVs improved respiratory system physiology and alveolar formation in mechanically ventilated preterm lambs. MSC-sEVs may be an effective and safe therapy for appropriate functional and structural development of the lung in preterm infants who require mechanical ventilation and are at risk of developing BPD. This study focused on potential treatment of preterm infants at risk of developing bronchopulmonary dysplasia (BPD), for which no effective treatment exists. We tested treatment of mechanically ventilated preterm lambs with human mesenchymal stromal cell extracellular vesicles (MSC-sEVs). The results show improved respiratory gas exchange and parenchymal growth of capillaries and epithelium that are necessary for alveolar formation. Our study provides new mechanistic insight into potential efficacy of MSC-sEVs for preterm infants at risk of developing BPD.