Developing, regenerating, and repairing a lung all require interstitial resident fibroblasts (iReFs) to direct the behavior of the epithelial stem cell niche. During lung development, distal lung fibroblasts, in the form of matrix-, myo-, and lipofibroblasts, form the extra cellular matrix (ECM), create tensile strength, and support distal epithelial differentiation, respectively. During de novo septation in a murine pneumonectomy lung regeneration model, developmental processes are reactivated within the iReFs, indicating progenitor function well into adulthood. In contrast to the regenerative activation of fibroblasts upon acute injury, chronic injury results in fibrotic activation. In murine lung fibrosis models, fibroblasts can pathologically differentiate into lineages beyond their normal commitment during homeostasis. In lung injury, recently defined alveolar niche cells support the expansion of alveolar epithelial progenitors to regenerate the epithelium. In human fibrotic lung diseases like bronchopulmonary dysplasia (BPD), idiopathic pulmonary fibrosis (IPF), and chronic obstructive pulmonary disease (COPD), dynamic changes in matrix-, myo-, lipofibroblasts, and alveolar niche cells suggest differential requirements for injury pathogenesis and repair. In this review, we summarize the role of alveolar fibroblasts and their activation stage in alveolar septation and regeneration and incorporate them into the context of human lung disease, discussing fibroblast activation stages and how they contribute to BPD, IPF, and COPD.