The alveolar epithelium is composed of the flat type I cells comprising 95% of the gas-exchange surface area and cuboidal type II cells comprising the rest. Type II cells are described as facultative progenitor cells based on their ability to proliferate and trans-differentiate into type I cells. In this study, we observed that pneumonia induced by intratracheal instillation of Pseudomonas aeruginosa (PA) in mice increased the expression of the forkhead transcription factor FoxM1 in type II cells coincidentally with the induction of alveolar epithelial barrier repair. FoxM1 was preferentially expressed in the Sca-1⁺ subpopulation of progenitor type II cells. In mice lacking FoxM1 specifically in type II cells, type II cells showed decreased proliferation and impaired trans-differentiation into type I cells. Lungs of these mice also displayed defective alveolar barrier repair after injury. Expression of FoxM1 in the knockout mouse lungs partially rescued the defective trans-differentiation phenotype. Thus, expression of FoxM1 in type II cells is essential for their proliferation and transition into type I cells and for restoring alveolar barrier homeostasis after PA-induced lung injury.