Despite substantial progress, mortality and morbidity of the acute respiratory distress syndrome (ARDS), a severe form of acute lung injury (ALI), remain unacceptably high. There is no effective treatment for ARDS/ALI. The renin-angiotensin system (RAS) through Angiotensin-converting enzyme (ACE)-generated Angiotensin II contributes to lung injury. ACE2, a recently discovered ACE homologue, acts as a negative regulator of the RAS and counterbalances the function of ACE. We hypothesized that ACE2 prevents Bleomycin (BLM)-induced lung injury. Fourteen to 16-week-old ACE2 knockout mice-male (ACE2(-/y)) and female (ACE2(-/-))-and age-matched wild-type (WT) male mice received intratracheal BLM (1.5U/kg). Male ACE2(-/y) BLM injured mice exhibited poorer exercise capacity, worse lung function and exacerbated lung fibrosis and collagen deposition compared with WT. These changes were associated with increased expression of the profibrotic genes α-smooth muscle actin (α-SMA) and Transforming Growth Factor ß1. Compared with ACE2(-/y) exposed to BLM, ACE2(-/-) exhibited better lung function and architecture and decreased collagen deposition. Treatment with intraperitoneal recombinant human (rh) ACE2 (2 mg/kg) for 21 days improved survival, exercise capacity, and lung function and decreased lung inflammation and fibrosis in male BLM-WT mice. Female BLM WT mice had mild fibrosis and displayed a possible compensatory upregulation of the AT2 receptor. We conclude that ACE2 gene deletion worsens BLM-induced lung injury and more so in males than females. Conversely, ACE2 protects against BLM-induced fibrosis. rhACE2 may have therapeutic potential to attenuate respiratory morbidity in ALI/ARDS.