Alveolar epithelial type II cells (AT2) are a heterogeneous population that have critical secretory and regenerative roles in the alveolus to maintain lung homeostasis. However, impairment to their normal functional capacity and development of a pro-fibrotic phenotype has been demonstrated to contribute to the development of idiopathic pulmonary fibrosis (IPF). A number of factors contribute to AT2 death and dysfunction. As a mucosal surface, AT2 cells are exposed to environmental stresses that can have lasting effects that contribute to fibrogenesis. Genetical risks have also been identified that can cause AT2 impairment and the development of lung fibrosis. Furthermore, aging is a final factor that adds to the pathogenic changes in AT2 cells. Here, we will discuss the homeostatic role of AT2 cells and the studies that have recently defined the heterogeneity of this population of cells. Furthermore, we will review the mechanisms of AT2 death and dysfunction in the context of lung fibrosis.