Tea tree oil (TTO) is a natural essential oil with strong antimicrobial efficacy and little drug resistance. However, the biomedical applications of TTO are limited due to its hydrophobicity and formulation problems. Here, we prepared an inhalable TTO nanoemulsion (nanoTTO) for local therapies of bacterial and fungal pneumonia. The optimal formulation of nanoTTOs consisted of TTO/Cremophor EL/water with a mean size of 12.5nm. The nanoTTOs showed strong in vitro antimicrobial activities on Escherichia coli, Acinetobacter baumannii, Klebsiella pneumoniae, Staphylococcus aureus and Candida albicans. After inhalation to the lung, the nanoTTOs had higher anti-fungal effect than fluconazole on the fungal pneumonia rat models with reduced lung injury, highly microbial clearance, blocking of leukocyte recruitment, and decrease of pro-inflammatory mediators. In the case of rat bacterial pneumonia, the nanoTTOs showed slightly lower therapeutic efficacy than penicillin though at a much lower dose. Taken together, our results show that the inhalable nanoTTOs are promising nanomedicines for local therapies of fungal and bacterial pneumonia with no obvious adverse events.