Fetal lung underdevelopment, also known as pulmonary hypoplasia, is characterized by decreased lung growth and maturation. The most common birth defect found in babies with pulmonary hypoplasia is congenital diaphragmatic hernia (CDH). Despite research and clinical advances, babies with CDH still have high morbidity and mortality rates, which are directly related to the severity of lung underdevelopment. To date, there is no effective treatment that promotes fetal lung growth and maturation. Here, we describe a stem cell–based approach in rodents that enhances fetal lung development via the administration of extracellular vesicles (EVs) derived from amniotic fluid stem cells (AFSCs). Using fetal rodent models of pulmonary hypoplasia (primary epithelial cells, organoids, explants, and in vivo), we demonstrated that AFSC-EV administration promoted branching morphogenesis and alveolarization, rescued tissue homeostasis, and stimulated epithelial cell and fibroblast differentiation. We confirmed this regenerative ability in in vitro models of lung injury using human material, where human AFSC-EVs obtained following good manufacturing practices restored pulmonary epithelial homeostasis. Investigating EV mechanism of action, we found that AFSC-EV beneficial effects were exerted via the release of RNA cargo. MicroRNAs regulating the expression of genes involved in lung development, such as the miR17–92 cluster and its paralogs, were highly enriched in AFSC-EVs and were increased in AFSC-EV–treated primary lung epithelial cells compared to untreated cells. Our findings suggest that AFSC-EVs hold regenerative ability for underdeveloped fetal lungs, demonstrating potential for therapeutic application in patients with pulmonary hypoplasia.