Background The progenitors to lung airway epithelium that are capable of long-term propagation may represent an attractive source of cells for cell-based therapies, disease modeling, toxicity testing, and others. Principally, there are two main options for obtaining lung epithelial progenitors: (i) direct isolation of endogenous progenitors from human lungs and (ii) in vitro differentiation from some other cell type. The prime candidates for the second approach are pluripotent stem cells, which may provide autologous and/or allogeneic cell resource in clinically relevant quality and quantity. Methods By exploiting the differentiation potential of human embryonic stem cells (hESC), here we derived expandable lung epithelium (ELEP) and established culture conditions for their long-term propagation (more than 6 months) in a monolayer culture without a need of 3D culture conditions and/or cell sorting steps, which minimizes potential variability of the outcome. Results These hESC-derived ELEP express NK2 Homeobox 1 (NKX2.1), a marker of early lung epithelial lineage, display properties of cells in early stages of surfactant production and are able to differentiate to cells exhibitting molecular and morphological characteristics of both respiratory epithelium of airway and alveolar regions. Conclusion Expandable lung epithelium thus offer a stable, convenient, easily scalable and high-yielding cell source for applications in biomedicine.