The bone morphogenetic protein (BMP) signaling pathway, including antagonists, functions in lung development and regeneration of tracheal epithelium from basal stem cells. Here, we explore its role in the alveolar region, where type 2 epithelial cells (AT2s) and Pdgfrα⁺ type 2-associated stromal cells (TASCs) are components of the stem cell niche. We use organoids and in vivo alveolar regrowth after pneumonectomy (PNX) – a process that requires proliferation of AT2s and differentiation into type 1 cells (AT1s). BMP signaling is active in AT2s and TASCs, transiently declines post-PNX in association with upregulation of antagonists, and is restored during differentiation of AT2s to AT1s. In organoids, BMP4 inhibits AT2 proliferation, whereas antagonists (follistatin, noggin) promote AT2 self-renewal at the expense of differentiation. Gain- and loss-of-function genetic manipulation reveals that reduced BMP signaling in AT2s after PNX allows self-renewal but reduces differentiation; conversely, increased BMP signaling promotes AT1 formation. Constitutive BMP signaling in Pdgfrα⁺ cells reduces their AT2 support function, both after PNX and in organoid culture. Our data reveal multiple cell-type-specific roles for BMP signaling during alveolar regeneration.