A new paradigm of epithelial tissue reconstitution has been suggested whereby circulating cells derived from bone marrow contribute to a variety of epithelial cell types. With regard to the lung, several recent reports have used immunofluorescence microscopy to demonstrate engraftment of bone marrow-derived cells as type II pneumocytes, the endogenous progenitors of the lung alveolus. We show here that immunofluorescence microscopy, as has been used in previous reports, cannot reliably identify rare engrafted cells in lung tissue sections after transplantation of bone marrow cells or purified hematopoietic stem cells tracked with ubiquitous labels. We have employed a lineage-specific reporter system based on transgenic mice that express the GFP reporter gene only in lung epithelial cells (surfactant protein C-GFP) to assay for engrafted cells by flow cytometry, histology, and molecular methods. Using this approach to evaluate transplant recipients, including those subjected to bleomycin-induced lung injury, we demonstrate that when autofluorescence, dead cells, and contaminating blood cells are excluded from analysis, there is no detectable reconstitution of lung alveolar epithelial cells by unfractionated bone marrow cells or purified hematopoietic stem cells.