The growth of alveolar type II cells was studied when these cells were maintained for 2 days on a pulmonary endothelium-derived extracellular matrix (ECM) on a filter with or without lung fibroblasts in the lower chambers of culture wells. Type II cell proliferation was enhanced by the ECM compared with other substrates but was significantly higher with fibroblasts beneath. This was determined by thymidine uptake and cell numbers. The diffusing factor from fibroblasts appeared to be keratinocyte growth factor (KGF), because this cytokine increased type II cell growth in culture and the neutralizing antibody to KGF blocked the observed fibroblast-induced growth increase. None of the antibodies to various cytokines had any effect on the ECM-induced proliferation. Although the type II cells were shown to produce degradative activity for the ECM, there was little secreted enzyme activity in supernatants and there was no demonstrated autocrine-regulated growth effect. The results suggest that type II cell growth may be stimulated by both 1) a matrix-bound factor that acts through a cell contact-mediated process, and 2) a fibroblast-secreted factor that appears to be KGF.