Club cells are known to function as regional progenitor cells to repair the bronchiolar epithelium in response to lung damage. By lineage tracing in mice, we have shown recently that club cells also give rise to alveolar type 2 cells (AT2s) and alveolar type 1 cells (AT1s) during the repair of the damaged alveolar epithelium. Here, we show that when highly purified, anatomically and phenotypically confirmed club cells are seeded in 3-dimensional culture either in bulk or individually, they proliferate and differentiate into both AT2- and AT1-like cells and form alveolar-like structures. This differentiation was further confirmed by transcriptomic analysis of freshly isolated club cells and their cultured progeny. Freshly isolated club cells express Sca-1 and integrin α6, markers commonly used to characterize lung stem/progenitor cells. Together, current study for the first time isolated highly purified club cells for in vitro study and demonstrated club cells' capacity to differentiate into alveolar epithelial cells at the single-cell level.