Despite the massive toll in human suffering imparted by degenerative lung disease, including COPD, idiopathic pulmonary fibrosis and ARDS, the scientific community has been surprisingly agnostic regarding the potential of lung tissue, and in particular the alveoli, to regenerate. However, there is circumstantial evidence in humans and direct evidence in mice that ARDS triggers robust regeneration of lung tissue rather than irreversible fibrosis. The stem cells responsible for this remarkable regenerative process has garnered tremendous attention, most recently yielding a defined set of cloned human airway stem cells marked by p63 expression but with distinct commitment to differentiated cell types typical of the upper or lower airways, the latter of which include alveoli-like structures in vitro and in vivo. These recent advances in lung regeneration and distal airway stem cells and the potential of associated soluble factors in regeneration must be harnessed for therapeutic options in chronic lung disease.