Type 2 alveolar epithelial cells (AT2s), facultative progenitor cells of the lung alveolus, play a vital role in the biology of the distal lung. In vitro model systems that incorporate human cells, recapitulate the biology of primary AT2s, and interface with the outside environment could serve as useful tools to elucidate functional characteristics of AT2s in homeostasis and disease. We and others recently adapted human induced pluripotent stem cell–derived AT2s (iAT2s) for air-liquid interface (ALI) culture. Here, we comprehensively characterize the effects of ALI culture on iAT2s and benchmark their transcriptional profile relative to both freshly sorted and cultured primary human fetal and adult AT2s. We find that iAT2s cultured at ALI maintain an AT2 phenotype while upregulating expression of transcripts associated with AT2 maturation. We then leverage this platform to assay the effects of exposure to clinically significant, inhaled toxicants including cigarette smoke and electronic cigarette vapor.