The development of the bronchial and alveolar epithelium was observed in rabbits from the 15th day post conception until the time of birth with the scanning electron microscope. In the pseudoglandular phase, primitive bronchi proliferate in the mesenchyme. The epithelial cells are not differentiated and have single cilia. After retraction of these single cilia cell differentiation begins. Flat cells densely populated with cytopodia can be recognized on the 22nd day, ciliated cells on the 23rd day post conception. Both are located in the bronchi near the hilus. In the canalicular phase of development, the differentiation of the mucoid cells and the Clara-cells begins. The interstitial connective tissue develops more and more capillaries. The alveolar phase begins around the 26th day p. c. The lung capillaries reach the alveolar epithelial cells and arrange themselves directly beneath the epithelial basement membrane. This "alveolarization" of the lung tissue starts in the centre of the lung lobules and proceeds to the periphery. After the 26th day post conception the alveolar epithelial cells retract their single cilium and at the same time become type I or type II pneumocytes. The undifferentiated entodermal stem cell of the alveolar epithelium is the pneumoblast.