Treatment of severe Coronavirus Disease 2019 (COVID-19) is challenging. We performed a phase 2 trial to assess the efficacy and safety of human umbilical cord-mesenchymal stem cells (UC-MSCs) to treat severe COVID-19 patients with lung damage, based on our phase 1 data. In this randomized, double-blind, and placebo-controlled trial, we recruited 101 severe COVID-19 patients with lung damage. They were randomly assigned at a 2:1 ratio to receive either UC-MSCs (4 × 107 cells per infusion) or placebo on day 0, 3, and 6. The primary endpoint was an altered proportion of whole lung lesion volumes from baseline to day 28. Other imaging outcomes, 6-minute walk test (6-MWT), maximum vital capacity, diffusing capacity, and adverse events were recorded and analyzed. In all, 100 COVID-19 patients were finally received either UC-MSCs (n = 65) or placebo (n = 35). UC-MSCs administration exerted numerical improvement in whole lung lesion volume from baseline to day 28 compared with the placebo (the median difference was -13.31%, 95% CI -29.14%, 2.13%, P = 0.080). UC-MSCs significantly reduced the proportions of solid component lesion volume compared with the placebo (median difference: -15.45%; 95% CI -30.82%, -0.39%; P = 0.043). The 6-MWT showed an increased distance in patients treated with UC-MSCs (difference: 27.00 m; 95% CI 0.00, 57.00; P = 0.057). The incidence of adverse events was similar in the two groups. These results suggest that UC-MSCs treatment is a safe and potentially effective therapeutic approach for COVID-19 patients with lung damage. A phase 3 trial is required to evaluate effects on reducing mortality and preventing long-term pulmonary disability. (Funded by The National Key R&D Program of China and others. ClinicalTrials.gov number, NCT04288102.