The human lung differs substantially from its murine counterpart, resulting in a distinct distal airway architecture affected by disease pathology in chronic obstructive pulmonary disease. In humans, the distal branches of the airway interweave with the alveolar gas exchange niche, forming an anatomical structure known as the respiratory bronchioles. Due to the lack of a murine counterpart, the cellular and molecular characterization of these respiratory bronchioles in the human lung remains an enigma. We show that human respiratory bronchioles contain a unique secretory cell population that is distinct from cells in larger proximal airways. Organoid modeling reveals that these respiratory airway secretory cells (RASCs) act as unidirectional progenitors for alveolar type 2 cells, which are essential for maintaining and regenerating the alveolar niche. RASC lineage differentiation into AT2 cells is regulated by Notch and Wnt signaling. In COPD, RASCs are altered transcriptionally, corresponding to abnormal AT2 cell states, which are associated with smoking exposure in both humans and ferrets. These data identify a distinct progenitor in a region of the human lung not found in mouse that plays a critical role in maintaining the gas exchange compartment and is altered in chronic lung disease.