Some patients infected with Severe Acute Respiratory Syndrome Coronavirus-2 (SARS-CoV-2) develop severe pneumonia and the acute respiratory distress syndrome (ARDS)1. Distinct clinical features in these patients have led to speculation that the immune response to virus in the SARS-CoV-2-infected alveolus differs from other types of pneumonia2. We collected bronchoalveolar lavage fluid samples from 88 patients with SARS-CoV-2-induced respiratory failure and 211 patients with known or suspected pneumonia from other pathogens and subjected them to flow cytometry and bulk transcriptomic profiling. We performed single-cell RNA-seq on 10 bronchoalveolar lavage fluid samples collected from patients with severe COVID-19 within 48 hours of intubation. In the majority of patients with SARS-CoV-2 infection, the alveolar space was persistently enriched in T cells and monocytes. Bulk and single-cell transcriptomic profiling suggested that SARS-CoV-2 infects alveolar macrophages, which in turn respond by producing T cell chemoattractants. These T cells produce interferon-gamma to induce inflammatory cytokine release from alveolar macrophages and further promote T cell activation. Collectively, our results suggest that SARS-CoV-2 causes a slowly unfolding, spatially limited alveolitis in which alveolar macrophages harboring SARS-CoV-2 and T cells form a positive feedback loop that drives persistent alveolar inflammation.