We used immunohistochemistry and electron microscopy to evaluate the differentiation of cells comprising atypical adenomatous hyperplasia (AAH; n = 26), early bronchioloalveolar lung carcinoma (BAC; n = 11), and overt BAC (n = 16), which are assumed to constitute a continuous spectrum of developmental steps of BAC. Surfactant apoprotein (SAP), a marker for type 2 alveolar cells, was expressed in cells from all the lesions of AAH, early BAC, and overt BAC. However, the proportion of SAP-positive cells decreased and their distribution became more heterogeneous with advancing lesion grade. Urine protein 1, which is identical to the Clara cell-specific 10 kDa protein, was expressed in 70% of overt BAC, whereas only 20% of early BAC showed weak reactivity and none of AAH lesions showed any reactivity at all. Ultrastructurally, type 2 alveolar cell differentiation was predominant among cells from AAH and early BAC. Our results suggest that precursor cells of BAC differentiate predominantly towards type 2 alveolar cells. Cells comprising overt BAC retain this differentiation phenotype, but to a reduced extent. In contrast, concomitantly with progression, cells with Clara cell differentiation emerge and their proportion increases. Such phenotypic changes may reflect metaplasia occurring in tumour cells during the development of BAC.