BACKGROUND: Lipopolysaccharide (LPS)-induced inflammation of lung tissues triggers irreversible alterations in the lung parenchyma, leading to fibrosis and pulmonary dysfunction. While the molecular and cellular responses of immune and connective tissue cells in the lungs are well characterized, the specific epithelial response remains unclear due to the lack of representative cell models. Recently, we introduced human embryonic stem cell-derived expandable lung epithelial (ELEP) cells as a novel model for studying lung injury and regeneration. METHODS: ELEPs were derived from the CCTL 14 human embryonic stem cell line through activin A-mediated endoderm specification, followed by further induction toward pulmonary epithelium using FGF2 and EGF. ELEPs exhibit a high proliferation rate and express key structural and molecular markers of alveolar progenitors, such as NKX2-1. The effects of Escherichia coli LPS serotype O55:B5 on the phenotype and molecular signaling of ELEPs were analyzed using viability and migration assays, mRNA and protein levels were determined by qRT-PCR, western blotting, and immunofluorescent microscopy. RESULTS: We demonstrated that purified LPS induces features of a hybrid epithelial-to-mesenchymal transition in pluripotent stem cell-derived ELEPs, triggers the unfolded protein response, and upregulates intracellular β-catenin level through retention of E-cadherin within the endoplasmic reticulum. CONCLUSIONS: Human embryonic stem cell-derived ELEPs provide a biologically relevant, non-cancerous lung cell model to investigate molecular responses to inflammatory stimuli and address epithelial plasticity. This approach offers novel insights into the fine molecular processes underlying lung injury and repair.