Alveolar reorganization after lung injury essentially depends on regeneration of alveolar epithelial cells during the tissue repair. Proliferation and differentiation of alveolar type II cells are therefore fundamental mechanisms in the repair and restoration of normal lung function after lung injury. We examined the combined effects of the extracellular matrix and soluble factors on proliferation and differentiation of alveolar type II cells in vitro, and found them to be more pronounced than those of either element by itself. We also found that rat alveolar type II cells proliferating in vitro can concurrently express different surfactant protein mRNAs. In an in vivo study, we examined the expression of surfactant protein genes in streptozotocin-induced diabetic lungs and in proliferating alveolar type II cells of rats with endotoxin--induced lung injury. The results show that SP-A, SP-B, and SP-C mRNAs are expressed at different levels in both alveoan and bronchiolar epithelial cells from diabetic lungs. They also show that endotoxin can induce marked proliferation of alveolar type II cells, in association with the increased SP-A production and overexpression of SP-A, SP-B, and SP-C mRNAs soon after lung injury. These results suggest that proliferation of alveolar type II cells may play a protective role, by repairing damaged alveoli and rapidly replenishing surfactant proteins.