Contribution of transplanted bone marrow has, in many models, led to the appearance of marrow-derived epithelial cells in a variety of organs, including the lung. Following the initial descriptions of these cells, many questions remain about the mechanisms by which bone marrow adopts an epithelial phenotype in the murine lung. Data from other epithelial lineages, such as those of the kidney and colon, suggest that one mechanism is fusion of transplanted marrow with host pneumocytes. This process appears to require severe damage and may not be the only mechanism by which mature lung epithelia can derive from marrow. This article discusses the processes leading to the appearance of marrow-derived pneumocytes and highlights the therapeutic potential of bone marrow to fuse with or differentiate into epithelial cells of the lung.