Idiopathic pulmonary fibrosis (IPF) is characterized by progressive dyspnea, interstitial infiltrates in lung parenchyma and restriction on pulmonary function testing. IPF is the most common and severe of the idiopathic interstitial pneumonias, with most individuals progressing to respiratory failure. Multiple lines of evidence reveal prominent roles for alveolar epithelial cells (AECs) in disease. The current disease paradigm is that ongoing or repetitive injurious stimuli in the presence of a genetic or acquired dysfunctional type II AEC phenotype results in increased AEC injury/apoptosis, deficiencies in regeneration of normal alveolar structure and aberrant lung repair and fibroblast activation, leading to progressive fibrosis. Although the nature of injurious events and processes involved in aberrant repair of the alveolar epithelium are not well understood, ongoing investigations provide hope to better understand mechanisms by which AECs maintain homeostasis or contribute to fibrosis. These strategies may hold promise for developing novel treatment approaches for IPF.