The respiratory endoderm develops from a small cluster of cells located on the ventral anterior foregut. This population of progenitors generates the myriad epithelial lineages required for proper lung function in adults through a complex and delicately balanced series of developmental events controlled by many critical signaling and transcription factor pathways. In the past decade, understanding of this process has grown enormously, helped in part by cell lineage fate analysis and deep sequencing of the transcriptomes of various progenitors and differentiated cell types. This review explores how these new techniques, coupled with more traditional approaches, have provided a detailed picture of development of the epithelial lineages in the lung and insight into how aberrant development can lead to lung disease.