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Alveolar type II (AT2) epithelial cells are uniquely specialized to produce surfactant in the lung and act as progenitor cells in the process of repair after lung injury. AT2 cell injury has been implicated in several lung diseases, including idiopathic pulmonary fibrosis and bronchopulmonary dysplasia. The inability to maintain primary AT2 cells in culture has been a significant barrier in the investigation of pulmonary biology. We have addressed this knowledge gap by developing a three-dimensional (3D) organotypic coculture using primary human fetal AT2 cells and pulmonary fibroblasts. Grown on top of matrix-embedded fibroblasts, the primary human AT2 cells establish a monolayer and have direct contact with the underlying pulmonary fibroblasts. Unlike conventional two-dimensional (2D) culture, the structural and functional phenotype of the AT2 cells in our 3D organotypic culture was preserved over 7 days of culture, as evidenced by the presence of lamellar bodies and by production of surfactant proteins B and C. Importantly, the AT2 cells in 3D cocultures maintained the ability to replicate, with approximately 60% of AT2 cells staining positive for the proliferation marker Ki67, whereas no such proliferation is evident in 2D cultures of the same primary AT2 cells. This organotypic culture system enables interrogation of AT2 epithelial biology by providing a reductionist in vitro model in which to investigate the response of AT2 epithelial cells and AT2 cell-fibroblast interactions during lung injury and repair.