The type II alveolar epithelial cell has important metabolic and biosynthetic functions but also serves as the stem cell of the alveolar epithelium. Much of the evidence underlying this premise was obtained before 1980 and provided the basis for a working model that has not been reconsidered for more than fifteen years. With the exceptions to be discussed below, little evidence has accumulated in the interim to suggest that the model requires significant alteration. Important questions remain unanswered, however, and some components of the model need to be supplemented, particularly in light of recent investigations that have provided insights not possible in earlier work. In particular, in vitro studies have suggested that the relationship between the parent type II cell and its progeny may not be as straightforward as originally thought. In addition, the rate of epithelial cell loss was recognized long ago to be an important factor in the regulation of this system, but its kinetics and mechanisms have received little attention. These and other unresolved issues are critical to our understanding of the homeostasis of the alveolar epithelium under normal and pathological conditions.