Alveolar type 2 (AT2) epithelial cells are tissue stem cells capable of differentiating into alveolar type 1 (AT1) cells for injury repair and maintenance of lung homeostasis. However, the factors involved in human AT2-to-AT1 cell differentiation are not fully understood. Here, we established SFTPC and AGER dual-reporter induced pluripotent stem cells (iPSCs), which detected AT2-to-AT1 cell differentiation with high sensitivity and identified factors inducing AT1 cell differentiation from AT2 and their progenitor cells. We also established an "on-gel" alveolar epithelial spheroid culture suitable for medium-throughput screening. Among the 274 chemical compounds, several single compounds, including LATS-IN-1, converted AT1 cells from AT2 and their progenitor cells. Moreover, YAP/TAZ signaling activation and AKT signaling suppression synergistically recapitulated the induction of transcriptomic, morphological, and functionally mature AT1 cells. Our findings provide novel insights into human lung development and lung regenerative medicine.