Mature alveolar type II cells that produce pulmonary surfactant are essential for adaptation to extrauterine life and prevention of infant respiratory distress syndrome. We have developed a new in vitro model to further investigate regulation of type II cell differentiation. Epithelial cells isolated from human fetal lung were cultured in serum-free medium on plastic. Cells treated with dexamethasone + cAMP analog and isobutylmethylxanthine for 4 days exhibited increased phosphatidylcholine synthesis and content of disaturated phosphatidylcholine species, manyfold increases in all surfactant proteins with processing to mature forms, and abundant lamellar bodies. DNA microarray analysis identified ∼3,100 expressed genes, including subsets of genes induced 2- to >100-fold (∼2.5%) or repressed 2- to 18-fold (∼1.2%) by hormone treatment. Of the highly regulated genes, most were coregulated in an additive or synergistic manner by dexamethasone and cAMP agents. Approximately 90% of the regulated genes identified by this initial microarray analysis have not been previously recognized as hormone responsive. One newly identified hormone-induced gene is Nkx2.1 (thyroid transcription factor-1), which has a critical role in surfactant protein gene expression. Our findings indicate that glucocorticoid + cAMP is sufficient and necessary for precocious induction of functional type II cells in this in vitro system and that these hormones act primarily in combination to regulate expression of a subset of specific genes.