Deriving lung progenitors from patient-specific pluripotent cells is a key step in producing differentiated lung epithelium for disease modeling and transplantation. By mimicking the signaling events that occur during mouse lung development, we generated murine lung progenitors in a series of discrete steps. Definitive endoderm derived from mouse embryonic stem cells (ESCs) was converted into foregut endoderm, then into replicating Nkx2.1+ lung endoderm, and finally into multipotent embryonic lung progenitor and airway progenitor cells. We demonstrated that precisely-timed BMP, FGF, and WNT signaling are required for NKX2.1 induction. Mouse ESC-derived Nkx2.1+ progenitor cells formed respiratory epithelium (tracheospheres) when transplanted subcutaneously into mice. We then adapted this strategy to produce disease-specific lung progenitor cells from human Cystic Fibrosis induced pluripotent stem cells (iPSCs), creating a platform for dissecting human lung disease. These disease-specific human lung progenitors formed respiratory epithelium when subcutaneously engrafted into immunodeficient mice.