This study uses microfluidic single-cell RNA sequencing (scRNA-seq) to analyze the lineage hierarchy of distal lung epithelial cells in mice. By examining 198 individual cells across four developmental stages, the researchers identified five distinct cell populations and four gene families, revealing the molecular basis of alveolar cell differentiation. The study confirms the classical model of epithelial cell diversity in the distal lung and identifies novel cell type markers and transcriptional regulators. It also reconstructs the molecular steps of maturation of bipotential progenitors along both alveolar lineages and elucidates the full lifecycle of the alveolar type 2 (AT2) cell lineage. The approach enables the identification and molecular characterization of cell types and developmental intermediates without prior purification of populations of interest. The study identifies lineage-specific genes and transcription factors, providing a battery of novel markers for distinguishing cells from different alveolar and bronchiolar lineages. It also reveals the temporal changes in the distal lung and identifies seven gene sets that robustly distinguish multipotential, bipotential, nascent, and mature AT2 cell states. The findings demonstrate that single-cell RNA-seq can be applied to any developing or mature tissue to delineate molecularly distinct cell types, define progenitors and lineage hierarchies, and identify lineage-specific regulatory factors. The study also validates the expression of several novel markers, including Hopx, Vegfa, Egfl6, Krt15, and others, in specific cell types. The results show that the alveolar epithelial cells at E16.5 are not yet segregated into AT1 and AT2 lineages, but by E18.5, they have clearly separated. The study also identifies the presence of intermediate maturation stages based on partial coexpression of AT1 and AT2 marker genes. The findings highlight the importance of lineage-specific gene expression in alveolar maturation and provide insights into the molecular regulation of these processes. The study also demonstrates that the transcriptional profiles of distal lung epithelial cells at E16.5 implicate a fifth population as alveolar bipotential progenitor (BP) cells. The study provides a comprehensive understanding of the molecular mechanisms underlying alveolar development and offers a framework for studying lineage-specific gene expression in other tissues.This study uses microfluidic single-cell RNA sequencing (scRNA-seq) to analyze the lineage hierarchy of distal lung epithelial cells in mice. By examining 198 individual cells across four developmental stages, the researchers identified five distinct cell populations and four gene families, revealing the molecular basis of alveolar cell differentiation. The study confirms the classical model of epithelial cell diversity in the distal lung and identifies novel cell type markers and transcriptional regulators. It also reconstructs the molecular steps of maturation of bipotential progenitors along both alveolar lineages and elucidates the full lifecycle of the alveolar type 2 (AT2) cell lineage. The approach enables the identification and molecular characterization of cell types and developmental intermediates without prior purification of populations of interest. The study identifies lineage-specific genes and transcription factors, providing a battery of novel markers for distinguishing cells from different alveolar and bronchiolar lineages. It also reveals the temporal changes in the distal lung and identifies seven gene sets that robustly distinguish multipotential, bipotential, nascent, and mature AT2 cell states. The findings demonstrate that single-cell RNA-seq can be applied to any developing or mature tissue to delineate molecularly distinct cell types, define progenitors and lineage hierarchies, and identify lineage-specific regulatory factors. The study also validates the expression of several novel markers, including Hopx, Vegfa, Egfl6, Krt15, and others, in specific cell types. The results show that the alveolar epithelial cells at E16.5 are not yet segregated into AT1 and AT2 lineages, but by E18.5, they have clearly separated. The study also identifies the presence of intermediate maturation stages based on partial coexpression of AT1 and AT2 marker genes. The findings highlight the importance of lineage-specific gene expression in alveolar maturation and provide insights into the molecular regulation of these processes. The study also demonstrates that the transcriptional profiles of distal lung epithelial cells at E16.5 implicate a fifth population as alveolar bipotential progenitor (BP) cells. The study provides a comprehensive understanding of the molecular mechanisms underlying alveolar development and offers a framework for studying lineage-specific gene expression in other tissues.