The discovery of embryonic and induced pluripotent stem cells (ESCs and iPSCs) has ushered in an exciting new era of regenerative medicine. Human pluripotent stem cells can be “directed” in vitro toward lung epithelium by applying specific stepwise combinations of growth factors that recapitulate the molecular mechanisms of respiratory development in animal models. In a relatively short time, there has been significant progress in deriving lung epithelium from ESCs/iPSCs. These directed differentiation protocols include high concentrations of activin A to induce definitive endoderm followed by dual inhibition of bone morphogenic protein and TGF-β signaling pathways to produce anterior foregut endoderm. Subsequent stimulation of Wnt, bone morphogenic protein, and fibroblast growth factor signaling leads to lung epithelial lineage specification, identified by the expression of Nkx2.1. These cells subsequently express other markers of the developing lung and a variety of lung epithelial subtypes. The major limitation in the field currently is deriving and characterizing mature, functional lung epithelium. The generation of iPSCs is now well established, and researchers have generated iPSCs from patients with acquired and inherited lung diseases. This platform offers unparalleled opportunities to model lung development and disease using human cells.