Influenza viruses cause acute respiratory disease of great importance to public health. Alveolar type II (ATII) respiratory epithelial cells are central to normal lung function and are a site of influenza A virus replication in the distal lung. However, the consequences of infection for ATII cell function are poorly understood. To determine the impact of influenza infection on ATII cells we used C57BL/6-congenic SP-CGFP mice that express green fluorescent protein (GFP) under the control of the surfactant protein-C (SP-C) promoter, which is only active in ATII cells. Most cells isolated from the lungs of uninfected SP-CGFP mice were GFP+ but did not express the alveolar type I (ATI) antigen podoplanin (PODO). ATII cells were also EpCAM+ and α2,3-linked sialosaccharide+. Infection with influenza A/WSN/33 virus caused severe hypoxemia and pulmonary edema. This was accompanied by loss of whole lung GFP fluorescence, reduced ATII cell yields, increased ATII cell apoptosis, reduced SP-C gene and protein expression in ATII cell lysates, and increased PODO gene and protein levels. Flow cytometry indicated that infection decreased GFP+/PODO− cells and increased GFP−/PODO+ and GFP−/PODO− cells. Very few GFP+/PODO+ cells were detectable. Finally, infection resulted in a significant decline in EpCAM expression by PODO+cells, but had limited effects on α2,3-linked sialosaccharides. Our findings indicate that influenza infection results in a progressive differentiation of ATII cells into ATI-like cells, possibly via an SP-C−/PODO− intermediate, to replace dying or dead ATI cells. However, impaired SP-C synthesis is likely to contribute significantly to reduced lung compliance in infected mice.