COPD is characterized by irreversible lung tissue damage. We hypothesized that lung-derived mesenchymal stromal cells (LMSCs) reduce alveolar epithelial damage via paracrine processes, and may thus be suitable for cell-based strategies in COPD. We aimed to assess whether COPD-derived LMSCs display abnormalities. LMSCs were isolated from lung tissue of severe COPD patients and non-COPD controls. Effects of LMSC conditioned-medium (CM) on H2O2-induced, electric field- and scratch-injury were studied in A549 and NCI-H441 epithelial cells. In organoid models, LMSCs were co-cultured with NCI-H441 or primary lung cells. Organoid number, size and expression of alveolar type II markers were assessed. Pre-treatment with LMSC-CM significantly attenuated oxidative stress-induced necrosis and accelerated wound repair in A549. Co-culture with LMSCs supported organoid formation in NCI-H441 and primary epithelial cells, resulting in significantly larger organoids with lower type II-marker positivity in the presence of COPD-derived versus control LMSCs. Similar abnormalities developed in organoids from COPD compared to control-derived lung cells, with significantly larger organoids. Collectively, this indicates that LMSCs' secretome attenuates alveolar epithelial injury and supports epithelial repair. Additionally, LMSCs promote generation of alveolar organoids, with abnormalities in the supportive effects of COPD-derived LMCS, reflective of impaired regenerative responses of COPD distal lung cells.