Stem cells have been shown to contribute to the repair and regeneration of injured lungs. These stem cells are resident in specific protected niches in the lung, or they can be mobilized from the bone marrow and recruited from the circulation in the setting of severe injury. Normal repair of the airway involves regeneration of the airway epithelium by stem cells in both the proximal airway and distal airspace, whereas aberrant repair of the lung may result from stem cells that lead to fibrosis. The stem cell niche in the lung is probably critical in determining whether “good” or “bad” stem cells are involved in local repair, and therefore whether fibrosis predominates. There is much excitement about the possibility of harnessing stem cells for repair and regeneration of the lungs. This review highlights current knowledge of this area and identifies gaps in our understanding of this complicated process.