Due to the unique physiological barriers within the lungs, there are considerable challenges in developing drug delivery systems enabling prolonged drug exposure to respiratory epithelial cells. Here, we report a PulmoSphere-based dry powder technology that incorporates a drug-phospholipid complex to promote intracellular retention of dehydroandrographolide succinate (DAS) in respiratory epithelial cells following pulmonary delivery. The DAS-phospholipid complex has the ability to self-assemble into nanoparticles. After spray-drying to produce PulmoSphere microparticles loaded with the drug-phospholipid complex, the rehydrated microparticles discharge the phospholipid complex without altering its physicochemical properties. The microparticles containing the DAS-phospholipid complex exhibit remarkable aerodynamic properties with a fine particle fraction of ∼ 60% and a mass median aerodynamic diameter of ∼ 2.3 μm. These properties facilitate deposition in the alveolar region. In vitro cell culture and lung tissue explants experiments reveal that the drug-phospholipid complex prolongs intracellular residence time and lung tissue retention due to the slow intracellular disassociation of drug from the complex. Once deposited in the lungs, the DAS-phospholipid complex loaded microparticles increase and extend drug exposure to the lung tissues and the immune cells compared to the free DAS counterpart. The improved drug exposure to airway epithelial cells, but not immune cells, is related to a prolonged duration of pulmonary anti-inflammation at decreased doses in a mouse model of acute lung injury induced by lipopolysaccharide. Overall, the phospholipid complex loaded microparticles present a promising approach for improved treatment of respiratory diseases, e.g. pneumonia and acute respiratory distress syndrome.