Necrotising enterocolitis (NEC) remains one of the primary causes of morbidity and mortality in neonates and alternative strategies are needed. Stem cells have become a therapeutic option for other intestinal diseases, which share some features with NEC. We tested the hypothesis that amniotic fluid stem (AFS) cells exerted a beneficial effect in a neonatal rat model of NEC. Rats intraperitoneally injected with AFS cells and their controls (bone marrow mesenchymal stem cells, myoblast) were analysed for survival, behaviour, bowel imaging (MRI scan), histology, bowel absorption and motility, immunofluorescence for AFS cell detection, degree of gut inflammation (myeloperoxidase and malondialdehyde), and enterocyte apoptosis and proliferation. AFS cells integrated in the bowel wall and improved rat survival and clinical conditions, decreased NEC incidence and macroscopic gut damage, improved intestinal function, decreased bowel inflammation, increased enterocyte proliferation and reduced apoptosis. The beneficial effect was achieved via modulation of stromal cells expressing cyclooxygenase 2 in the lamina propria, as shown by survival studies using selective and non-selective cyclooxygenase 2 inhibitors. Interestingly, AFS cells differentially expressed genes of the Wnt/β-catenin pathway, which regulate intestinal epithelial stem cell function and cell migration and growth factors known to maintain gut epithelial integrity and reduce mucosal injury. We demonstrated here for the first time that AFS cells injected in an established model of NEC improve survival, clinical status, gut structure and function. Understanding the mechanism of this effect may help us to develop new cellular or pharmacological therapies for infants with NEC.