The alveolar epithelium is composed of type I cells covering most of the gas-blood exchange surface and type II cells secreting surfactant that lowers surface tension of alveoli to prevent alveolar collapse. Here we have identified a subgroup of type II cells expressing higher level of cell surface molecule CD44 (CD44high type II cells) that comprised ~3% of total type II cells in 5-10 week old mice. These cells were preferentially apposed to lung capillaries. They displayed a higher proliferation rate and augmented differentiation capacity into type I cells and the ability to form alveolar organoids compared to CD44low type II cells. More-over, in aged mice of 18-24 months old, the percentage of CD44high type II cells among all type II cells was increased but these cells showed decreased progenitor properties. Thus, CD44high type II cells likely represent a type II sub-population important for constitutive regulating alveolar homeostasis.