SUMMARY: PROJECT 1 A variety of devastating lung diseases are initiated by dysfunction or damage to the diverse epithelia of the proximal airways or distal alveoli. While these tissues are composed of many epithelial cell types, the vast majority are continually replenished by the stem/progenitor cells of each compartment: airway basal cells or alveolar epithelial type 2 cells (AT2s), respectively. Implicit in this biology is recognition that durably reconstituting these stem cell compartments with exogenously-derived normal cells might result in life-long replenishment of their many differentiated cell derivatives. In this proposal we develop approaches for reconstituting endogenous airway and alveolar stem/progenitor cell compartments by transplanting engineered lung epithelial progenitors derived in culture from pluripotent stem cells. We present methods for the directed differentiation of pluripotent stem cells into airway basal cells (iBCs) and distal alveolar bud tip progenitors (iTPs) followed by intra-airway instillation of these cells into recipient mice. We test the hypothesis that iBCs or iTPs can be engrafted in vivo into the stem cell compartments of airways and alveoli, respectively, thus durably reconstituting epithelial function and providing future treatments for genetic lung diseases that result from airway or alveolar dysfunction. In aim 1 we test the capacity of engrafted iTPs to functionally rescue alveolar epithelial cell dysfunction in vivo in 2 genetic mouse models that recapitulate distal human lung diseases. In Aim 2 we develop a novel in vivo “competitive lung repopulation assay” able to determine which candidate stem/progenitor cell phenotype is best able to reconstitute in vivo airway epithelial stem cell function, and we apply this assay to functionally test the hypothesis that the subset of PSC-derived basal cells expressing the BMP antagonist, Nbl1, possesses more potent reconstitution capacity than other iBCs, as a result of suppressed BMP signaling activity. Finally in aim 3, we evaluate the functional capacity of engrafted mouse iBCs to rescue motile ciliary function in a mouse model of primary ciliary dyskinesia (PCD), and we test the human translational potential of iBCs using normal or PCD patient-specific human iPSC lines that will be gene-corrected, differentiated into iBCs, and xenogeneically transplanted into NSG mice.