Early stages of deadly respiratory diseases such as COVID-19 have been challenging to elucidate due to lack of an experimental system that recapitulates the cellular and structural complexity of the human lung, while allowing precise control over disease initiation and systematic interrogation of molecular events at cellular resolution. Here we show healthy human lung slices cultured ex vivo can be productively infected with SARS-CoV-2, and the cellular tropism of the virus and its distinct and dynamic effects on host cell gene expression can be determined by single cell RNA sequencing and reconstruction of “infection pseudotime” for individual lung cell types. This revealed the prominent SARS-CoV-2 target is a population of activated interstitial macrophages, which as infection proceeds accumulate thousands of viral RNA molecules per cell, comprising up to 60% of the cellular transcriptome and including canonical and novel subgenomic RNAs. During viral takeover, there is cell-autonomous induction of a specific host interferon program and seven chemokines (CCL2, 7, 8, 13, CXCL10) and cytokines (IL6, IL10), distinct from the response of alveolar macrophages in which neither viral takeover nor induction of a substantial inflammatory response occurs. Using a recombinant SARS-CoV-2 Spike-pseudotyped lentivirus, we show that entry into purified human lung macrophages depends on Spike but is not blocked by cytochalasin D or by an ACE2-competing monoclonal antibody, indicating a phagocytosis- and ACE2-independent route of entry. These results provide a molecular characterization of the initiation of COVID-19 in human lung tissue, identify activated interstitial macrophages as a prominent site of viral takeover and focus of inflammation, and suggest targeting of these macrophages and their signals as a new therapeutic modality for COVID-19 pneumonia and progression to ARDS. Our approach can be generalized to define the initiation program and evaluate therapeutics for any human lung infection at cellular resolution.