Lung hypoplasia can be prevented in vitro by retinoic acid (RA). Recent evidence suggests that amniotic fluid stem (AFS) cells may integrate injured lungs and influence their recovery. We tested the hypothesis that AFS cells might improve lung growth and motility by paracrine mechanisms. Pregnant rats received either nitrofen or vehicle on E9.5. In vitro E13 embryonic lungs were cultured in the presence of culture medium alone or with RA, basophils, or AFS cells. In vivo green fluorescent protein-expressing (GFP(+)) rat AFS cells were transplanted in nitrofen-exposed rats on E10.5. E13 lung explants were cultured before analysis. The surface, the number of terminal buds, and the frequency of bronchial contractions were assessed. Protein gene product 9.5 (PGP 9.5) and α-actin protein levels were measured. The lung explants transplanted with AFS cells were stained for α-actin, PGP 9.5, and TTF-1. The levels of FGF-10, VEGFα, and TGF-β1 secreted by the AFS cells in the culture medium were measured. Comparison between groups was made by ANOVA. In vitro, the surface, the number of terminal buds, and the bronchial peristalsis were increased in nitrofen+AFS cell explants in comparison with nitrofen-exposed lungs. While nitrofen+RA lungs were similar to nitrofen+AFS ones, basophils did not normalize these measurements. PGP 9.5 protein was decreased in nitrofen lungs, but after adding AFS cells, the value was similar to controls. No differences were found in the expression of α-actin. In vivo, the surface, number of terminal buds, and peristalsis were similar to control after injection of AFS cells in nitrofen-exposed rats. Colocalization with TTF-1-positive cells was found. The levels of FGF-10 and VEGFα were increased in nitrofen+AFS cell explants, while the levels of TGF-β1 were similar to controls. Lung growth, bronchial motility, and innervation were decreased in nitrofen explants and rescued by AFS cells both in vitro and in vivo, similarly to that observed before with RA. The AFS cell beneficial effect was probably related to paracrine action of growth factor secretion.