Advances in stem cell technologies in recent years have generated considerable interest in harnessing the potential of adult and embryonic stem cells in regenerative medicine. Stem cell-based therapies are a particularly attractive option for the treatment of intractable lung diseases for which current therapies are essentially palliative. Proof-of-principle experiments in animal models demonstrate the efficacy of exogenous stem cells in mediating lung repair by attenuating fibrotic responses to injury, but also suggest that their ability to contribute to lung epithelial regeneration and repair is limited. Consequently, attention has turned to endogenous lung stem cells as targets or vehicles for the delivery of lung regenerative therapies. In this article, we discuss the potential and promise of endogenous lung stem cells in regenerative medicine, and the problems and challenges faced by researchers and clinicians in harnessing their potential to repair the lung.