The alveolar epithelium serves as a barrier between organism and environment and functions as the first line of protection against potential respiratory pathogens. Alveolar type II (TII) cells have traditionally been considered the immune cells of the alveolar epithelium, as they possess immunomodulatory functions; however, the precise role of alveolar type I (TI) cells, which comprise ∼95% of the alveolar epithelial surface area, in lung immunity is not clear. We sought to determine if there was a difference in the response of TI and TII cells to lung injury and if TI cells could actively participate in the alveolar immune response. TI cells isolated via fluorescence activated cell sorting (FACS) from LPS-injured rats demonstrated greater fold-induction of multiple inflammatory mediators than TII cells isolated in the same manner from the same animals. Levels of the cytokines TNF-α, IL-6 and IL-1β from cultured primary rat TI cells after LPS stimulation were significantly increased compared to similarly studied primary rat TII cells. We found that contrary to published reports, cultured TII cells produce relatively small amounts of TNF-α, IL-6 and IL-1β after LPS treatment; the higher levels of cytokine expression from cultured TII cells reported in the literature were likely from macrophage contamination due to traditional non-FACS TII cell isolation methods. Co-culture of TII cells with macrophages prior to LPS stimulation increased TNF-α and IL-6 production to levels reported by other investigators for TII cells, however, co-culture of TI cells and macrophages prior to LPS treatment resulted in marked increases in TNF-α and IL-6 production. Finally, exogenous surfactant blunted the IL-6 response to LPS in cultured TI cells. Taken together, these findings advocate a role for TI cells in the innate immune response and suggest that both TI and TII cells are active players in host defense mechanisms in the lung.