Although early events in the pathogenesis of acute lung injury (ALI) have been defined, little is known about the mechanisms mediating resolution. To search for determinants of resolution, we exposed wild type (WT) mice to intratracheal LPS and assessed the response at intervals to day 10, when injury had resolved. Inducible NO synthase (iNOS) was significantly upregulated in the lung at day 4 after LPS. When iNOS-/- mice were exposed to intratracheal LPS, early lung injury was attenuated; however, recovery was markedly impaired compared with WT mice. iNOS-/- mice had increased mortality and sustained increases in markers of lung injury. Adoptive transfer of WT (iNOS+/+) bone marrow-derived monocytes or direct adenoviral gene delivery of iNOS into injured iNOS-/- mice restored resolution of ALI. Irradiated bone marrow chimeras confirmed the protective effects of myeloid-derived iNOS but not of epithelial iNOS. Alveolar macrophages exhibited sustained expression of cosignaling molecule CD86 in iNOS-/- mice compared with WT mice. Ab-mediated blockade of CD86 in iNOS-/- mice improved survival and enhanced resolution of lung inflammation. Our findings show that monocyte-derived iNOS plays a pivotal role in mediating resolution of ALI by modulating lung immune responses, thus facilitating clearance of alveolar inflammation and promoting lung repair.