An ongoing controversy is the role of marrow cells in populating the alveolar epithelium. In this study, we employed flow cytometry and histologic techniques to evaluate this process. Donor bone marrow was harvested from transgenic mice expressing the LacZ or eGFP gene ubiquitously, or under the control of the human surfactant protein (SP)-C promoter, and transplanted into lethally irradiated, neonatal mice. In recipients transplanted with marrow that express eGFP or lacZ ubiquitously, light microscopy revealed cells whose morphology and location were compatible with a type II cell phenotype. Consistent with this, fluorescent microscopy suggested colocalization of eGFP and pro-SP-C proteins in single cells. In mice transplanted with SP-C-eGFP marrow, engraftment was not detectable by histology or flow cytometry. We therefore used deconvolution microscopy to reanalyze histologic sections that were thought to show marrow-derived type II cells. We found that all putative marrow-derived pneumocytes resulted from the overlapping fluorescent signals of an endogenous pro-SP-C+ type II cell and a donor-derived eGFP+ cell. Taken together, our observations underscore the technical difficulties associated with evaluating engraftment in lung, and argue against a contributory role for marrow cells in populating the alveolar epithelium.