Abstract Oxygen passes along the ramifying branches of the lung’s bronchial tree and enters the blood through millions of tiny, thin-walled gas exchange sacs called alveoli. Classical histological studies have suggested that alveoli arise late in development by a septation process that subdivides large air sacs into smaller compartments. Although a critical role has been proposed for contractile myofibroblasts, the mechanism of alveolar patterning and morphogenesis is not well understood. Here we present the three-dimensional cellular structure of alveoli, and show using single-cell labeling and deep imaging that an alveolus in the mouse lung is composed of just 2 epithelial cells and a total of a dozen cells of 7 different types, each with a remarkable, distinctive structure. By mapping alveolar development at cellular resolution at a specific position in the branch lineage, we find that alveoli form surprisingly early by direct budding of epithelial cells out from the airway stalk between enwrapping smooth muscle cells that rearrange into a ring of 3-5 myofibroblasts at the alveolar base. These alveolar entrance myofibroblasts are anatomically and developmentally distinct from myofibroblasts that form the thin fiber partitions of alveolar complexes (‘partitioning’ myofibroblasts). The nascent alveolar bud is led by a single alveolar type 2 (AT2) cell following selection from epithelial progenitors; a lateral inhibitory signal transduced by Notch ensures selection of only one cell so its trailing neighbor acquires AT1 fate and flattens into the cup-shaped wall of the alveolus. Our analysis suggests an elegant new model of alveolar patterning and formation that provides the foundation for understanding the cellular and molecular basis of alveolar diseases and regeneration. One Sentence Summary We report a direct budding mechanism of alveolar development distinct from the classical model of subdivision (‘septation’) of large air sacs.

Alveoli form directly by budding led by a single epithelial cell