Alveolar type II (ATII) epithelial cells play a crucial role in the repair and remodeling of the lung following injury. ATII cells have the capability to proliferate and differentiate into alveolar type I (ATI) cells in vivo and into an ATI-like phenotype in vitro. While previous reports indicate that the differentiation of ATII cells into ATI cells is a complex biological process, the underlying mechanism responsible for differentiation is not fully understood. To investigate factors involved in this differentiation in culture, we used a PCR array and identified several genes that were either up- or downregulated in ATI-like cells ( day 6 in culture) compared with day 2 ATII cells. Insulin-like growth factor-I (IGF-I) mRNA was increased nearly eightfold. We found that IGF-I was increased in the culture media of ATI-like cells and demonstrated a significant role in the differentiation process. Treatment of ATII cells with recombinant IGF-I accelerated the differentiation process, and this effect was abrogated by the IGF-I receptor blocker PQ401. We found that Wnt5a, a member of the Wnt-Frizzled pathway, was activated during IGF-I-mediated differentiation. Both protein kinase C and β-catenin were transiently activated during transdifferentiation. Knocking down Wnt5a using small-interfering RNA abrogated the differentiation process as indicated by changes in the expression of an ATII cell marker (prosurfactant protein-C). Treatment of wounded cells with either IGF-I or Wnt5a stimulated wound closure. These results suggest that IGF-I promotes differentiation of ATII to ATI cells through the activation of a noncanonical Wnt pathway.