Rationale: Directed trans-differentiation of ectopic alveolar basal cells (ABC) to alveolar epithelial type (AT)2 cells may facilitate normal lung regeneration and inhibit pathological bronchiolization in idiopathic pulmonary fibrosis (IPF). To induce ABC to AT2 trans-differentiation, we treated cultured ABC with KF-DCI (KGF, FGF-10, dexamethasone, 8-Bromo-cAMP, IBMX) and determined AT2-, ciliated-, and secretory epithelial cell marker expression. Furthermore, we examined what factors in KF-DCI were essential for its effects. Methods: IPF ABC were cultured on plastic or on an air-liquid interface and maintained in growth medium, or in differentiation medium +/- KF-DCI (KGF, FGF-10 (both 10 ng/ml), dexamethasone (50 nM), 8-Bromo-cAMP (0.1 mM), IBMX (0.1 mM)). Cell marker expression was analyzed by TaqMan RT-PCR and immunofluorescence. Results: Differentiation medium strongly induced the expression of secretory (SCGB1A1, MUC5AC, MUC5B)-, and ciliated (FOXJ1)- epithelial cell markers, and weakly that of surfactant protein (SP)-B in ABC. Addition of KF-DCI inhibited the expression of SCGB1A1, MUC5AC, MUC5B and FOXJ1 and further up-regulated SP-B. SP-A, C and D were not induced by KF-DCI in ABC. Removing the cAMP elevating compounds IBMX or 8-Bromo-cAMP from KF-DCI, reversed all KF-DCI effects on ABC. Conclusion: KF-DCI inhibits ABC differentiation towards ciliated- or secretory epithelial cells and directs it towards SP-B expressing cells in a cAMP-dependent manner. Increasing cellular cAMP represents an attractive pharmacological intervention that may reduce bronchiolization and facilitate normal lung regeneration in IPF.