Idiopathic pulmonary fibrosis (IPF) is a devastating lung disease that progressively and irreversibly alters the lung parenchyma, eventually leading to respiratory failure. The study of this disease has been historically challenging due to the myriad of complex processes that contribute to fibrogenesis and the inherent difficulty in accurately recreating the human pulmonary environment . Here, we describe a poly(ethylene glycol) PEG hydrogel-based three-dimensional model for the co-culture of primary murine pulmonary fibroblasts and alveolar epithelial cells that reproduces the micro-architecture, cell placement, and mechanical properties of healthy and fibrotic lung tissue. Co-cultured cells retained normal levels of viability up to at least three weeks and displayed differentiation patterns observed during IPF progression. Interrogation of protein and gene expression within this model showed that myofibroblast activation required both extracellular mechanical cues and the presence of alveolar epithelial cells. Differences in gene expression indicated that cellular co-culture induced TGF-β signaling and proliferative gene expression, while microenvironmental stiffness upregulated the expression of genes related to cell-ECM interactions. This biomaterial-based cell culture system serves as a significant step forward in the accurate recapitulation of human lung tissue and highlights the need to incorporate multiple factors that work together synergistically into models of lung biology of health and disease.