Airspaces of the lung are lined by an epithelium whose cellular composition changes along the proximal-to-distal axis to meet local functional needs for mucociliary clearance, hydration, host defense, and gas exchange. Advances in cell isolation, in vitro culture techniques, and genetic manipulation of animal models have increased our understanding of the development and maintenance of the pulmonary epithelium. This review discusses basic cellular mechanisms that regulate establishment of the conducting airway and gas exchange systems as well as the functional maintenance of the epithelium during postnatal life.