The alveolar epithelium is composed of two cell types: type I cells comprise 95% of the gas exchange surface area, whereas type II cells secrete surfactant, while retaining the ability to convert into type I cells to induce alveolar repair. Using lineage-tracing analyses in the mouse model of Pseudomonas aeruginosa-induced lung injury, we identified a population of stem cell antigen (Sca)-1-expressing type II cells with progenitor cell properties that mediate alveolar repair. These cells were shown to be distinct from previously reported Sca-1-expressing bronchioalveolar stem cells. Microarray and Wnt reporter studies showed that surfactant protein (Sp)-C(+)Sca-1(+) cells expressed Wnt signaling pathway genes, and inhibiting Wnt/β-catenin signaling prevented the regenerative function of Sp-C(+)Sca-1(+) cells in vitro. Thus, P. aeruginosa-mediated lung injury induces the generation of a Sca-1(+) subset of type II cells. The progenitor phenotype of the Sp-C(+)Sca-1(+) cells that mediates alveolar epithelial repair might involve Wnt signaling.