I live in home that was built in the late 1800's in St. Louis. When we bought the house the
Basement walls were covered with particle board and the ceiling was droped, over the
Years the boards have gotten wet and are falling apart at the bottom. My wife wants me
To take down the boards and expose the walls behind them.

I have looked at the walls behind one of the panels and found the stone to be in fair
Condition but there is some loose material at the bottom which seems to fallen from the
Walls over the years, (we've lived in this house for over 20 years).

The question I have is what can I do to repair the walls if need be or what can I use to
Smooth the walls once I've taken down the particle board walls?

Hopefully you'll find that the material fallen from the walls is due to dryness, not water damage.

If that's the case, then use a hydraulic cement for the larger cracks then use a mortar mix for the rest of it to smooth it out.

You can actually get quite smooth with mortar mix for the final surface, then paint it instead of covering it - so that if you have a water or shifting problem in the future, you can spot it quickly.

That's the way I would handle it, but stay tuned: there are a few good interior remodeling people active here on the site.