Ozone (O3) gas is a double-sided weapon. It provides a shield that protects life on earth from the harmful ultraviolet (UV) rays, but ground-level O3 is considered an urban air pollutant. So, a rat model of chronic O3 inhalation was established to assess the biochemical and morphological alterations in the lung tissue and to investigate the ameliorative effects of bone marrow–derived mesenchymal stem cells (BMSCs) with or without hypoxia pre-treatment. Forty-two adult male albino rats were divided into four groups: control, ozone-exposed, normoxic BMSC-treated, and hypoxic BMSC-treated groups. Lung tissue sections were processed for light and electron microscope examination, immunohistochemical staining for caspase 3, and iNOS. Quantitative real-time PCR for IL-1α, IL-17, TNF-α, and Nrf2 mRNA gene expression were also performed. Chronic O3 exposure caused elevated inflammatory cytokines and decreased antioxidant Nrf2 mRNA expression. Marked morphological alterations with increased collagen deposition and elevated apoptotic markers and iNOS were evident. BMSC treatment showed immunomodulatory (decreased inflammatory cytokine gene expression), antioxidant (increased Nrf2 expression and decreased iNOS), and anti-apoptotic (decreased caspase3 expression) effects. Consequently, ameliorated lung morphology with diminished collagen deposition was observed. Hypoxia pretreatment enhanced BMSC survival by MTT assay. It also augmented the previously mentioned effects of BMSCs on the lung tissue as proved by statistical analysis. Lung morphology was similar to that of control group. In conclusion, hypoxia pretreatment represents a valuable intervention to enhance the effects of MSCs on chronic lung injury.