Functional tissue regeneration is required for restoration of normal organ homeostasis after severe injury. While some organs, such as the intestine, harbor active stem cells throughout homeostasis and regeneration1, more quiescent organs like the lung often contain facultative progenitor cells which are recruited after injury to participate in regeneration2,3. Here we show that a Wnt-responsive alveolar epithelial progenitor (AEP) lineage within the alveolar type 2 (AT2) cell population acts as a major facultative progenitor cell in the distal lung. AEPs are a stable lineage during alveolar homeostasis but expand rapidly to regenerate a large proportion of the alveolar epithelium after acute lung injury. AEPs exhibit a distinct transcriptome, epigenome, and functional phenotype with specific responsiveness to Wnt and Fgf signaling. In distinction to other proposed lung progenitor cells, human AEPs (hAEPs) can be directly isolated via expression of the conserved cell surface marker TM4SF1, and hAEPs act as functional human alveolar epithelial progenitor cells in 3D organoids. Together, our results identify the AEP lineage as an evolutionarily conserved alveolar progenitor and a new target for human lung regeneration strategies.