Mature alveolar type II cells that produce pulmonary surfactant are essential for adaptation to extrauterine life and prevention of infant respiratory distress syndrome. We have developed a new in vitro model to further investigate regulation of type II cell differentiation. Epithelial cells isolated from human fetal lung were cultured in serum-free medium on plastic. Cells treated with dexamethasone + cAMP analog and isobutylmethylxanthine for 4 days exhibited increased phosphatidylcholine synthesis and content of disaturated phosphatidylcholine species, manyfold increases in all surfactant proteins with processing to mature forms, and abundant lamellar bodies. DNA microarray analysis identified approximately 3,100 expressed genes, including subsets of genes induced 2- to >100-fold (approximately 2.5%) or repressed 2- to 18-fold (approximately 1.2%) by hormone treatment. Of the highly regulated genes, most were coregulated in an additive or synergistic manner by dexamethasone and cAMP agents. Approximately 90% of the regulated genes identified by this initial microarray analysis have not been previously recognized as hormone responsive. One newly identified hormone-induced gene is Nkx2.1 (thyroid transcription factor-1), which has a critical role in surfactant protein gene expression. Our findings indicate that glucocorticoid + cAMP is sufficient and necessary for precocious induction of functional type II cells in this in vitro system and that these hormones act primarily in combination to regulate expression of a subset of specific genes.