Background: Pathways directing endogenous stem/progenitor cells to restore normal architecture and function of damaged/diseased lungs remain underexplored. Published data have revealed that alveolar progenitor type II cell (ATIIC)-derived signaling promotes re-epithelialization of injured alveoli, yet the underlying mechanism is unknown. Here we aim to define the role of ATIIC-derived exosome miRNA signaling in controlling ATIIC-specific proliferation or differentiation in response to injury. Methods: Pluripotent stem cell-derived cultures, which contain early lung stem/progenitor populations that can subsequently differentiate into ATIICs, were used as a model for unbiased screening and identification of ATIIC phenotype-specific exosome miRNA signaling, and human induced pluripotent stem cell-derived ATIICs (hiPSC-ATIICs) were employed to examine the molecular basis of key exosome miRNA signaling in promoting ATIIC-specific proliferation. QRT-PCR was performed to examine expression pattern of ATIIC-derived key exosome miRNA in an alveolar injury model and in injured human lungs. Results: We show that human ATIIC line (A549)-derived exosome miR-371b-5p promotes ATIIC-specific proliferation, but not differentiation, in differentiating cultures of pluripotent stem cells. Using 3'UTR-driven luciferase reporters, we identified PTEN as a direct target of miR-371b-5p. Transfection of miR-371b-5p mimic into hiPSC-ATIICs leads to significantly decreased expression of endogenous PTEN, which stimulates phosphorylation of Akt and its downstream substrates, GSK3 beta and FOXOs, promoting cell proliferation. While not expressed in normal ATIIC phenotypes, the exosome miR-371b-5p expression is significantly induced after hiPSC-ATIICs or hATIICs (human primary ATIICs) are subjected to bleomycin-induced injury. To rule out that the ATIIC-derived exosome-miRNAs are merely a cell culture phenomenon, we transplanted hiPSC-ATIICs into bleomycin-challenged lungs of mice, and found that the transplanted hiPSC-ATIICs engraft and express exosome miR-371b-5p, along with additional survival of numerous mouse ATIICs in bleomycin-injured lungs. Consistent with these findings, significant levels of exosome miR-371b-5p were also detected in lavage samples of patients with acute pneumonia, but not in those from patients without pulmonary disorders. Conclusions: Collectively, our data strongly suggest that ATIIC-derived exosome miR-371b-5p may serve as a niche signaling to augment ATIIC survival/proliferation, promoting re-epithelialization of injured alveoli, and thus provide a promising novel target to develop treatment for currently incurable lung diseases.