Alveolar sacs usually occur at the termination of an alveolar duct but may occur anywhere along its length. Alveoli are surrounded and separated from one another by an exceedingly thin connective tissue layer that contains blood capillaries. The tissue between adjacent alveolar air spaces is called the alveolar septum or septal wall (Fig. 19.15).
Alveolar epithelium is composed of type I and II alveolar cells and occasional brush cells.
The alveolar surface forms a vulnerable biologic interface that is subject to many destabilizing surface forces and to continuous exposure to inhaled particles, pathogens, and toxins. The alveolar epithelium is composed of several specialized cells and their products, some of which play defensive and protective roles:  Type I alveolar cells, also known as type I pneumocytes, comprise only 40% of the entire alveolar lining cells. They are extremely thin squamous cells; they line most (95%) of the surface of the alveoli (see Fig. 19.15). These cells are joined to one another and to the other cells of the alveolar epithelium by occluding junctions (Fig. 19.16). The junctions form an effective barrier between the air space and the components of the septal wall. Type I alveolar cells are not capable of cell division.
 Type II alveolar cells, also called type II pneumocytes or septal cells, are secretory cells. These cuboidal cells are interspersed among the type I cells but tend to congregate at septal junctions. Type II cells account for 60% of the alveolar lining cells, but because of their different shape they cover only about 5% of the alveolar air surface. Like Clara cells, type II cells tend to bulge into the air space (see Fig. 19.16). Their apical cytoplasm is filled with granules that are resolved with the TEM (Fig. 19.17) as stacks of parallel membrane lamellae, the lamellar bodies. They are rich in a mixture of phospholipids, neutral lipids, and proteins, that is secreted by exocytosis to form an alveolar lining, surface-active agent called surfactant. In addition to secretion of surfactant, type II alveolar cells are progenitor cells for type I alveolar cells. After lung injury, they proliferate and restore both types of alveolar cells within the alveolus. Hyperplasia of type II alveolar cells is an important marker of alveolar injury and repair of alveoli.
 Brush cells are also present in the alveolar wall, but they are few in number. They may serve as receptors that monitor air quality in the lung.
Surfactant decreases the alveolar surface tension and actively participates in the clearance of foreign materials.
The surfactant layer produced by type II alveolar cells reduces the surface tension at the air–epithelium interface. The most critical agent for air space stability is a specific phospholipid called dipalmitoylphosphatidylcholine (DPPC), which accounts for almost all surface tension–reducing properties of surfactant. Surfactant synthesis in the fetus occurs after the 35th week of gestation and is modulated by a variety of hormones, including cortisol, insulin, prolactin, and thyroxine. Without adequate secretion of surfactant, the alveoli would collapse on each successive exhalation. Such collapse occurs in premature infants whose lungs have not developed sufficiently to produce surfactant, causing neonatal respiratory distress syndrome (RDS). Prophylactic administration of exogenous surfactant at birth to extremely premature infants and administration to symptomatic newborns reduces the risk of RDS. In addition, administration of cortisol to mothers with threatened premature delivery decreases neonatal mortality.
Surfactant proteins help organize the surfactant layer and modulate alveolar immune responses.