<b><i>Background:</i></b> Bronchopulmonary dysplasia (BPD) is a chronic lung disease that affects extremely preterm infants and remains – despite improvements in neonatal intensive care – a major cause of neonatal mortality and morbidity. Cell-therapeutic strategies employing mesenchymal stem cells (MSC) have been shown to modulate lung development in BPD models. <b><i>Objective:</i></b> Herein, we evaluate the potential of human amniotic fluid (hAF)-SC and hAF-SC with upregulated expression of vascular endothelial growth factor (VEGF) as cell-therapeutic agents for BPD. <b><i>Methods:</i></b> Preterm rabbit pups were raised in normoxia (21% O₂) or hyperoxia (≥95% O₂). Hyperoxia-exposed pups randomly received an intraperitoneal injection of fibroblasts, naïve hAF-SC, or hAF-SC-VEGF on postnatal day (PN) 0. On PN7, surviving pups were tested for pulmonary (forced oscillation technique) and vascular (pulmonary artery Doppler ultrasound) function, and lungs were processed for morphometric measurements of parenchymal and vascular structure and inflammation. <b><i>Results:</i></b> Intraperitoneal injection of cells resulted in homing to the lungs. The lungs of hyperoxia-exposed animals displayed parenchymal and vascular structural and functional damage reminiscent of BPD, which was significantly improved after treatment with hAF-SC-VEGF. Treating hyperoxia-exposed animals with naïve AF-SC attenuated only the lung inflammation and the vascular structural defect. Treatment with fibroblasts, which were used as a cellular control, did not lead to any improvements. <b><i>Conclusion:</i></b> hAF-SC with upregulated VEGF expression display enhanced potential to prevent/reverse lung injury in preterm rabbits, whereas naïve hAF-SC only show a moderate therapeutic potential. These results point towards an added value of VEGF delivered by hAF-SC in the treatment of BPD.