Gas exchange in the lung occurs across the alveolar epithelium, which consists of flattened AT1 cells that comprise the gas exchange surface and cuboidal surfactant-producing AT2 cells. Both cell types are generated from a bipotential progenitor, but the events surrounding cell differentiation and morphogenesis of the alveolar structure are still poorly understood. On p. 54, Jichao Chen and colleagues investigate the differentiation, morphogenesis and plasticity of mouse AT1 cells in the peri- and postnatal lung. They find that, although alveolar surface area increases dramatically in the weeks after birth, AT1 cells do not appear to proliferate; increase in surface area is achieved by a ∼10-fold increase in cell size. AT1 cell differentiation involves a two-step process of cell flattening and cell folding as alveolar septation occurs. Moreover, signals from the AT1 cells may regulate alveolar angiogenesis and secondary septation. Finally, although AT1 cells are highly morphologically differentiated, they still show some degree of plasticity: overexpression of SOX2, which promotes airway differentiation, in developing or mature AT1 cells causes retraction of the cellular extensions and induces proliferation. Together, these data shed light on the mechanisms underlying postnatal lung development and add to accumulating evidence for an unexpected degree of plasticity in the lung epithelium.