To address the self-renewal and differentiation potential of these progenitor epithelial cells, individual colonies were isolated from primary cultures and seeded in tissue culture plates precoated with collagen I in 50% epithelial growth medium and 50% MSC conditioned medium (MSC-CM); referred to as epithelial differentiation medium in the text. In epithelial differentiation medium, the cells continued to grow, became flattened, and appeared as thinly spread cell clusters ( Fig. 2A) . By day 5, the expression of pro surfactant protein C (SPC) was detected in the cytoplasm of these flattened cells (Fig. 2B ). These features are consistent with the type II pneumocytes. Also, expression of aquaporin 5 (Aqua5) protein, a marker for type I pneumocytes was detected on expanded cells which were significantly larger than that of the parental primary epithelial colony cells (Fig. 2B ). The expression of SPC or Aqua5 was not detected on primary undifferentiated cells. These results suggest that bone marrow progenitor epithelial cells have the potential to differentiate into type I and II like pneumocytes.