Alveolar type II pneumocytes (ATII cells) are considered putative alveolar stem cells. Since no treatment is available to repair damaged epithelium and prevent lung fibrosis, novel approaches to induce regeneration of injured alveolar epithelium are desired. The objective of this study was to assess both the capacity of human embryonic stem cells (HUES-3) to differentiate in vitro into ATII cells and the ability of committed HUES-3 cells (HUES-3-ATII cells) to recover in vivo a pulmonary fibrosis model obtained by silica-induced damage. In vitro differentiated HUES-3-ATII cells displayed an alveolar phenotype characterised by multi-lamellar body and tight junction formation, by the expression of specific markers such as surfactant protein (SP)-B, SP-C and zonula occludens (ZO)-1 and the activity of cystic fibrosis transmembrane conductance regulator-mediated chloride ion transport. After transplantation of HUES-3-ATII cells into silica-damaged mice, histological and biomolecular analyses revealed a significant reduction of inflammation and fibrosis markers along with lung function improvement, weight recovery and increased survival. The persistence of human SP-C, human nuclear antigen and human DNA in the engrafted lungs indicates that differentiated cells remained engrafted up to 10 weeks. In conclusion, cell therapy using HUES-3 cells may be considered a promising approach to lung injury repair.