question: The distal lung contains terminal bronchioles and alveoli that facilitate gas exchange. Three-dimensional in vitro human distal lung culture systems would strongly facilitate investigation of pathologies including interstitial lung disease, cancer, and SARS-CoV-2-associated COVID-19 pneumonia. We generated long-term feeder-free, chemically defined culture of distal lung progenitors as organoids derived from single adult human alveolar epithelial type II (AT2) or KRT5+ basal cells. AT2 organoids exhibited AT1 transdifferentiation potential while basal cell organoids developed lumens lined by differentiated club and ciliated cells. Single cell analysis of basal organoid KRT5+ cells revealed a distinct ITGA6+ITGB4+ mitotic population whose proliferation further segregated to a TNFRSF12Ahi subfraction comprising ~10% of KRT5+ basal cells, residing in clusters within terminal bronchioles and exhibiting enriched clonogenic organoid growth activity. Distal lung organoids were created with apical-out polarity to display ACE2 on the exposed external surface, facilitating SARS-CoV-2 infection of AT2 and basal cultures and identifying club cells as a novel target population. This long-term, feeder-free organoid culture of human distal lung, coupled with single cell analysis, identifies unsuspected basal cell functional heterogeneity and establishes a facile in vitro organoid model for human distal lung infections including COVID-19-associated pneumonia.