Alveolar cell fate specification. a) In mice, glucocorticoid signaling establishes the bronchoalveolar duct junction (BADJ), which demarcates the airway from the future site of alveoli formation. Bud tip progenitor identity is maintained by high levels of WNT and FGF signaling. High levels of HIPPO signaling in bud tip daughter cells born after BADJ formation leads to differentiation into alveolar progenitors, which co-express markers of ATI and ATII cells. In humans, whether BADJ formation occurs is unknown. Human bud tip progenitors downregulate SOX2 by week 16 of development, suggesting a change in the developmental potential of human bud tips occurs at 16 weeks. b) Morphology of alveoli. ATI cells are thin to facilitate gas exchange. ATII cells contain lamellar bodies, a surfactant producing organelle. c) In vitro models of alveolar cell fate specification. Putative alveolar progenitors are purified from hPSC-derived NXK2.1+ lung epithelium. Conditions of high WNT, glucocorticoid, cAMP, and FGF signaling lead to the formation of ATII-like cells containing lamellar bodies. Incorporation of human fetal lung mesenchyme leads to the generation of ATI-like cells.