Lung diseases such as chronic obstructive pulmonary disease and pulmonary fibrosis involve the progressive and inexorable destruction of oxygen exchange surfaces and airways, and have emerged as a leading cause of death worldwide. Mitigating therapies, aside from impractical organ transplantation, remain limited and the possibility of regenerative medicine has lacked empirical support. However, it is clinically known that patients who survive sudden, massive loss of lung tissue from necrotizing pneumonia or acute respiratory distress syndrome often recover full pulmonary function within six months. Correspondingly, we recently demonstrated lung regeneration in mice following H1N1 influenza virus infection, and linked distal airway stem cells expressing Trp63 (p63) and keratin 5, called DASC(p63/Krt5), to this process. Here we show that pre-existing, intrinsically committed DASC(p63/Krt5) undergo a proliferative expansion in response to influenza-induced lung damage, and assemble into nascent alveoli at sites of interstitial lung inflammation. We also show that the selective ablation of DASC(p63/Krt5) in vivo prevents this regeneration, leading to pre-fibrotic lesions and deficient oxygen exchange. Finally, we demonstrate that single DASC(p63/Krt5)-derived pedigrees differentiate to type I and type II pneumocytes as well as bronchiolar secretory cells following transplantation to infected lung and also minimize the structural consequences of endogenous stem cell loss on this process. The ability to propagate these cells in culture while maintaining their intrinsic lineage commitment suggests their potential in stem cell-based therapies for acute and chronic lung diseases.