Angiotensin-converting enzyme 2 (ACE2) is a receptor for cell entry of SARS-CoV-2, and recombinant soluble ACE2 protein inhibits SARS-CoV-2 infection as a decoy. ACE2 is the carboxypeptidase to degrade angiotensin II (Ang II) to angiotensin 1-7 and improves the pathologies of cardiovascular disease and acute lung injury. To address whether the carboxypeptidase enzymatic activity of ACE2 is protective against COVID-19, we investigated the effects of B38-CAP, an ACE2-like enzyme, on SARS-CoV-2-induced lung injury. Expression of ACE2 protein was significantly downregulated in the lungs of SARS-CoV-2-infected hamsters. Recombinant S1 domain or receptor-binding domain (RBD) of the SARS-CoV-2 Spike protein also directly downregulated ACE2 expression and elevated Ang II levels and considerably worsened acid-induced lung injury in hamsters. Treatment with B38-CAP downregulated Spike RBD-induced high Ang II levels, severe inflammation and pulmonary edema through its ACE2-like enzymatic activity. Consistently, elevated cytokine mRNA levels and impaired lung functions were improved by B38-CAP treatment. Moreover, in SARS-CoV-2-infected humanized ACE2 transgenic mice, B38-CAP significantly improved the pathologies of lung injury, alleviated the cytokine storms and downregulated viral RNA levels. These results provide the first experimental in vivo evidence that increasing ACE2-like enzymatic activity is a potential and powerful therapeutic strategy for lung pathologies in COVID-19.