The conducting airways (bronchi and bronchioles) and peripheral gas exchange (alveolar) regions of the mammalian lung are generated by a process of branching morphogenesis. Evidence suggests that during embryonic development, the undifferentiated epithelial progenitors are located at the distal tips of the branching epithelium. To test this hypothesis, we used an Id2-CreER^T2 knock-in mouse strain to lineage trace the distal epithelial tip cells during either the pseudoglandular or canalicular phases of development. During the pseudoglandular stage, the tip cells both self-renew and contribute descendents to all epithelial cell lineages, including neuroendocrine cells. In addition, individual Id2⁺ tip cells can self-renew and contribute descendents to both the bronchiolar and alveolar compartments. By contrast, during the later canalicular stage, the distal epithelial tip cells only contribute descendents to the alveoli. Taken together, this evidence supports a model in which the distal tip of the developing lung contains a multipotent epithelial population, the fate of which changes during development.