Pluripotent stem cells are cells that can differentiate into any tissue from all germ layers and include embryonic stem cells and induced pluripotent cells (iPS). Embryonic stem cells are derived from 8-day blastocysts obtained from unutilized embryos following in vitro fertilization, while iPS is obtained following transfection of dermal fibroblasts with pluripotent genes (sex determining region Y-binding, Kruppel-like factor 4, octamer-binding transcription factor 4 and c-Myc). The major challenge is to differentiate these cells into lung epithelium for therapeutic applications as well as to model lung diseases such as cystic fibrosis. In this review, the developmental pathways of the lung and how these pathways have been recapitulated in vitro to induce differentiation of pluripotent cells to lung epithelium were examined. © 2013 The Authors. Respirology © 2013 Asian Pacific Society of Respirology.