Controversies and risks continue to be reported about exogenous mesenchymal stem cell‐based therapies. In contrast with employing exogenous stem cells, making use of lung resident mesenchymal stem cells (LR‐MSCs) could be advantageous. Our study sought to isolate the LR‐MSCs and explore their potential to differentiate into alveolar epithelial type II cells (ATII cells). Total lung cells were first precultured, from which the Sca‐1⁺CD45⁻CD31⁻ population was purified using fluorescence activated cell sorting (FACS). By these methods, it would seem that the Sca‐1⁺CD45⁻CD31⁻ cells were LR‐MSCs. Similar to bone marrow derived mesenchymal stem cells (BM‐MSCs), these cells express Sca‐1, CD29, CD90, CD44 and CD106, but not CD31 or CD45. They share the same gene expression file with the BM‐MSCs and have a similar DNA content during long‐term culturing. Furthermore, they could be serially passaged with all these properties being sustained. Above all, LR‐MSCs could differentiate into ATII cells when co‐cultured with ATII cells in a trans‐well system. These findings demonstrated that the Sca‐1⁺CD45⁻CD31⁻ cells appear to be LR‐MSCs that can differentiate into ATII cells. This approach may hold promise for their use in the treatment of lung disease.