Abstract: Stem cells are induced in culture to form cells which express surfactant protein C (SPC), thereby offering a convenient and abundant supply of alveolar tissue without requiring lung donation or the use of cadavers. Stem cells are cultured to give embryoid bodies, which are they maintained under conditions which cause them to differentiate into cells which express SPC. SAGM medium has been found to be particularly effective for causing differentiation of the embryoid bodies.