Embryonic stem (ES) cells are self-renewable and pluripotent cells derived from the inner cell mass of a blastocyst-stage embryo. ES cell pluripotency is being investigated increasingly to obtain specific cell lineages for therapeutic treatments and tissue engineering. Type II alveolar epithelial cells have been derived from murine ES cells, but the capacity of the latter to generate differentiated airway epithelial tissue has never been reported. Herein, we show by RT-PCR and immunocytochemistry that murine ES cells are able to differentiate into nonciliated secretory Clara cells, and that type I collagen induces this commitment. Moreover, when cultured at the air–liquid interface, ES cells give rise to a fully differentiated airway epithelium. By quantitative histologic examination, immunohistochemistry, and scanning electron microscopy, we show that the bioengineered epithelium is composed of basal, ciliated, intermediate, and Clara cells, similar to those of native tracheobronchial airway epithelium. Transmission electron microscopy and Western blotting reveal that the generated epithelium also exhibits the ultrastructural features and secretory functions characteristic of airway epithelial tissue. These results open new perspectives for cell therapy of injured epithelium in airway diseases, such as bronchopulmonary dysplasia, cystic fibrosis, or bronchiolitis obliterans.