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 a carboxypeptidase that degrades angiotensin II (Ang II) and thereby improves the pathologies of acute lung injury. To address whether the carboxypeptidase activity of ACE2 is protective in COVID-19, we investigated the effects of B38-CAP, an ACE2-like enzyme, on SARS-CoV-2-induced lung injury. Expression of endogenous ACE2 protein was significantly downregulated in the lungs of SARS-CoV-2-infected hamsters or human ACE2 transgenic mice, leading to elevation of Ang II levels. In vivo administration of recombinant SARS-CoV-2 Spike trimer also downregulated ACE2 expression, elevated Ang II levels and considerably worsened the symptoms of acute lung injury in hamsters exposed to acid aspiration. Despite its ACE2-like catalytic core, B38-CAP neither bound to Spike nor neutralized cell entry of SARS-CoV-2. However, treatment with B38-CAP improved the pathologies of Spike-augmented acid-induced lung injury. In SARS-CoV-2-infected hamsters, B38-CAP significantly improved lung edema and pathologies of lung injury without affecting viral RNA loads. Moreover, in human ACE2 transgenic mice, B38-CAP also attenuated SARS-CoV-2-induced lung edema and pathologies and improved lung functions. These results provide the first experimental in vivo evidence that increasing ACE2-like enzymatic activity is a potential therapeutic strategy to alleviate lung pathologies in COVID-19.