Many patients experiencing sudden loss of lung tissue somehow undergo full recovery; here this recovery is traced to a discrete population of lung stem cells that are not only essential for lung regeneration but can be cloned and then transplanted to other mice to contribute new lung tissue. The extent to which patients can recover after massive loss of lung tissue has been unclear. However, clinical experience has shown that large-scale lung regeneration can occur in children and adults following catastrophic lung damage, and previous studies in mice have linked a subset of cells from distal airway to a regeneration process observed after H1N1 influenza virus mediated injury. Two papers published in this issue show that when the epithelial cells lining the interior of the lung are damaged, a rare stem cell population is induced to proliferate and migrate to the damaged site where they differentiate into several cell types. Frank McKeon and colleagues describe a rare subset of mouse distal airway cells that proliferate after exposure to influenza. These cells can contribute to lung regeneration after transplantation and maintain their intrinsic lineage commitment in cell culture, suggesting that such cell subsets may have potential in stem-cell-based therapies. Harold Chapman and colleagues used lineage tracing to identify a population of quiescent cells in the mouse distal lung that are activated after bleomycin or influenza-mediated injury. These cells express cytokeratin 5 and repair the epithelium through a Notch signalling pathway, although persistent Notch signalling in this context then leads to the formation of cysts. Data from patients suffering from lung fibrosis also show the presence of hyperactive Notch and similar cysts. Lung diseases such as chronic obstructive pulmonary disease1 and pulmonary fibrosis2 involve the progressive and inexorable destruction of oxygen exchange surfaces and airways, and have emerged as a leading cause of death worldwide. Mitigating therapies, aside from impractical organ transplantation, remain limited and the possibility of regenerative medicine has lacked empirical support. However, it is clinically known that patients who survive sudden, massive loss of lung tissue from necrotizing pneumonia3,4 or acute respiratory distress syndrome5,6 often recover full pulmonary function within six months. Correspondingly, we recently demonstrated lung regeneration in mice following H1N1 influenza virus infection, and linked distal airway stem cells expressing Trp63 (p63) and keratin 5, called DASCp63/Krt5, to this process7. Here we show that pre-existing, intrinsically committed DASCp63/Krt5 undergo a proliferative expansion in response to influenza-induced lung damage, and assemble into nascent alveoli at sites of interstitial lung inflammation. We also show that the selective ablation of DASCp63/Krt5 in vivo prevents this regeneration, leading to pre-fibrotic lesions and deficient oxygen exchange. Finally, we demonstrate that single DASCp63/Krt5-derived pedigrees differentiate to type I and type II pneumocytes as well as bronchiolar secretory cells following transplantation to infected lung and also minimize the structural consequences of endogenous stem cell loss on this process. The ability to propagate these cells in culture while maintaining their intrinsic lineage commitment suggests their potential in stem cell-based therapies for acute and chronic lung diseases.