Alveolar epithelial type II (ATII)-like cells can be generated from murine embryonic stem cells (ESCs), although to date, no robust protocols applying specific differentiation factors are established. We hypothesized that the keratinocyte growth factor (KGF), an important mediator of lung organogenesis and primary ATII cell maturation and proliferation, together with dexamethasone, 8-bromoadenosine-cAMP, and isobutylmethylxanthine (DCI), which induce maturation of primary fetal ATII cells, also support the alveolar differentiation of murine ESCs. Here we demonstrate that the above stimuli synergistically potentiate the alveolar differentiation of ESCs as indicated by increased expression of the surfactant proteins (SP-) C and SP-B. This effect is most profound if KGF is supplied not only in the late stage, but at least also during the intermediate stage of differentiation. Our results indicate that KGF most likely does not enhance the generation of (mes)endodermal or NK2 homeobox 1 (Nkx2.1) expressing progenitor cells but rather, supported by DCI, accelerates further differentiation/maturation of respiratory progeny in the intermediate phase and maturation/proliferation of emerging ATII cells in the late stage of differentiation. Ultrastructural analyses confirmed the presence of ATII-like cells with intracellular composite and lamellar bodies. Finally, induced pluripotent stem cells (iPSCs) were generated from transgenic mice with ATII cell-specific lacZ reporter expression. Again, KGF and DCI synergistically increased SP-C and SP-B expression in iPSC cultures, and lacZ expressing ATII-like cells developed. In conclusion, ATII cell-specific reporter expression enabled the first reliable proof for the generation of murine iPSC-derived ATII cells. In addition, we have shown KGF and DCI to synergistically support the generation of ATII-like cells from ESCs and iPSCs. Combined application of these factors will facilitate more efficient generation of stem cell-derived ATII cells for future basic research and potential therapeutic application.