Investigating the intra-lung human immune responses to SARS-CoV-2, and how immune signatures temporally correlate to distinct histopathological manifestations of disease in the human lung, is not possible in human patients. While current non-human primate and rodent models have proven instrumental for evaluating COVID-19 treatments and vaccines, their non-human nature precludes faithful recapitulation of fundamental host-pathogen interactions and immunopathogenesis, particularly those governing severe COVID-19 disease. Here, using different mouse models engrafted with human lung tissues and human immune hematopoietic cells, we provide a unique picture of how differential human hematopoietic reconstitution, and immune signatures upon infection, correlate with distinct histopathology during SARS-CoV-2 infection. To do so, we engrafted pairs of human fetal lung xenografts (fLX) harboring lung-resident hematopoietic lineages into immunodeficient NRG mice (NRG-L), or into NRG-Flk2-/-Flt3LG mice co-engrafted with components of a human immune system (HIS-NRGF-L). Strikingly, while SARS-CoV-2 inoculation of NRG-L mice resulted in productive infection and extensive histopathological features typically observed in the lungs of severe COVID-19 patients, HIS-NRGF-L were able to rapidly control infection while preserving tissue integrity. Distinct histopathological outcomes were governed by differential proteomics and phospho-proteomics signatures and underscored the USP18-ISG15 pathway as a top immunomodulatory pathway defining effective control of viral replication and maintenance of tissue integrity in human lung tissue during SARS-CoV-2 infection. Our work highlights fLX-engrafted mice as a powerful platform to investigate the molecular basis that drives effective immune control of SARS-CoV-2, and open avenues for the development of innovative immunotherapies targeting the USP18-ISG15 pathway to alleviate severe COVID-19.