Bronchopulmonary dysplasia (BPD) is a chronic lung disease that affects 10,000-15,000 neonates per year in the United States. Children with BPD are plagued by respiratory impairment throughout their life. BPD is caused by the high level of oxygen given to premature infants for survival. A key feature of BPD is defective alveolar differentiation. The molecular mechanisms underlying BPD are largely unknown and there are no therapies to prevent BPD. Our lab’s novel lung organoid culture systems have led us to uncover detailed molecular mechanisms by which adult lung stem cells can be directed to differentiate into alveolar cell types by their surrounding microenvironment. In preliminary studies, we found that lung stem cells have decreased ability to differentiate into alveolar organoids when co cultured with mesenchymal cells from the murine hyperoxia model of BPD. In contrast, lung stem cells from hyperoxic BPD mice exhibit normal alveolar differentiation when cultured with mesenchymal cells from control mice. Furthermore, cells from the BPD model express significantly lower levels of Lgr5, a marker of a new lung mesenchymal cell population we recently defined that can support alveolar differentiation. We hypothesize that in BPD, alterations in lung mesenchymal cells leads to aberrant signaling to lung stem cells, resulting in defective alveolar differentiation.